Just three years after Nigeria paid off its external debt of $35.916 billion, the country has embarked on another debt binge. The Senate recently accused the Umaru Yar’Adua administration of resorting to reckless borrowing from foreign institutions. The Senate is right. History is repeating itself right before our eyes. The international capital market operators are once again pushing their loans by telling our leaders that Nigeria has limited options to plug its budget deficit.
Why is Yar’Adua, our deliberative president returning us to the status of debt peonage?
One reason is to help finance his budget deficit resulting from plunging oil prices and the slowing down of economic growth. Revenue from oil, which accounts for 95 percent of government receipts, has slumped to around $1 billion in January, down more than 50 percent from last year’s monthly average of around $2.2 billion
There is also the war in the Niger Delta and the illegal bunkering that now amounts to a loss of over one million barrels of oil a day. Some estimates suggest that even if our 36 states access their remaining share of excess crude savings this year, they will still see revenues drop 15 percent relative to last year.
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Government’s latest forecast is that the economy will probably expand between 5 percent and 6 percent this year, down from the 8.9 per cent growth rate estimated by the president in his budget. But the International Monetary Fund forecasts only a real GDP growth of 2.9 per cent for this year.
Other influential foreign observers of Nigeria’s economy have also been more cautious than Abuja. The African Development Bank expects the economy to expand 4 per cent this year, down from an estimated 6.1 percent in 2008, while Standard & Poor’s (S&P) on March 27 cut the outlook on Nigeria’s BB- credit rating from stable to negative as oil prices plunged. For emphasis, the S&P warned in a recent report that Nigeria’s risk to creditworthiness is clearly on the downside [and] the balance sheet is deteriorating. These then may be some of the background to President Yar’Adua’s rush into the debt trap.
Recently Finance Minister, Mansur Muktar announced that Nigeria’s external debt of US$3.75 billion will likely rise by the end of the year because the government is seeking a US$500 million stimulus package loan from the World Bank. This is in addition to the $1 billion the Federal government is seeking from the Bank to fight malaria scourge’ and the $420 million the Bank announced last week that it had budgeted under its Growth and Employment in States (GEMS) programme to generate more than 100,000 new jobs in Nigeria. Interestingly $3.2 billion of the debt is owed to World Bank alone. Government is also considering by borrowing another $150 million from in the African Development Bank (AfDB).
To save face, Abuja makes the ludicrous point that borrowing from the World Bank will be on concessional terms’ with a grace period of 40 years for repayment, including a 10 year moratorium. Big deal! Since sweetened lending condition become enough reason to saddle future generations with suffocating levels of international debt; especially, after former President Obasanjo implemented a huge wealth transfer of $18 billion from this impoverished country to wealthy Paris Club countries ostensibly to make Nigeria debt free?
The Debt Management Office (DMO) adds that Nigeria’s domestic debt is about N2.3 trillion (81 per cent of total debt of N2.855 trillion). The 36 states account for 40 per cent while the federal government accounts for 60. According to the DMO, the national debt (domestic and foreign) translates to about 12 per cent of our annual gross domestic product (GDP). And these monstrous debt figures exclude the N270 billion already raised from bonds this year alone.
Resorting to borrowing rather than creative economic policies to grow our economy out of its current difficulties is too easy an option. But Abuja does not seem to care. In addition to the mounting debt, it has chosen a number of other painless options that will surely soon catch up with us.
It has abandoned the plan to sell a global bond of $500 million. To help plug its funding gap, Abuja is also seeking to raid the Nigerian Trust Fund in the AfDB by withdrawing our $200 million contribution to the $300 million regional loan facility. Yet, government has failed to curb spending on frivolities even as our foreign reserves have declined to $45 billion in April from about $53 billion in January of this year.
While we do not envy the officials with the difficult task of making our economic policies, we disagree with the assessment that Nigeria has limited options to plug its budget deficit because are not convinced that government has looked carefully at various ways to generate additional revenues, plug leakages, ensure greater efficiency in spending, and looking forward, how we can diversify our economy. Why, for one example, are we not pushing agriculture, a sector where we should have some comparative advantage to lead our economic growth? Why is Aso Rock backsliding on the new tax administration strategy announced earlier this year for which this column applauded the government? More loans are not the answer to our current economic difficulties. Improving our tax collection systems is. It is estimated that private companies and federal agencies owe more than 260 billion naira and $260 million in back taxes.
According to our Auditor-General, the federal government lost N39 billion in import levies waivers granted recklessly by government. We also learned that our Customs and Excise failed to remit about N13 billion it collected into the Federation Account, and that we lose about $5.4 billion annually because the Customs Service is unable to collect crude oil export duties from oil companies. Abuja should collect these funds before running cap-in-hand to the international lenders.
