Returning to another debt trap

JANUARY 2, 2015 BY PUNCH EDITORIAL BOARD


WITHOUT batting an eyelid, President Goodluck Jonathan and his economic guru, Ngozi Okonjo-Iweala, have proposed to spend N943 billion on debt servicing in 2015. At 21.67 per cent of the total expenditure plan and with lower revenues already buffeting the economy, debt may once more hobble development and drain scarce resources. Nigeria urgently needs to apply the brakes on debts and deploy effective measures to turn the economy around for sustainable growth.

Despite its repeated claims to the contrary, it is apparent that the Jonathan government is driving the economy and the Nigerian state to the brink, not forward. This is apparent in the rising debt. We had warned in the past that we should avoid plunging headlong into another debt trap. The country carried a crippling debt overhang for three decades that we only exited in 2005/06 at a steep price. Then, we had to pay $12.4 billion to the Paris Club of international creditors to obtain an $18 billion write-off and throw off the yoke. The promise (which never fully materialised) was that savings of $1 billion-$2 billion hitherto spent on annual debt servicing obligations would thenceforth be used to fund critical areas, especially the United Nations Millennium Development Goals.

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Alas, we have since been slowly, but surely, creating a new debt trap. The danger was initially domestic debts, which had been allowed to pile up. Soon, and especially since Jonathan mounted the saddle in 2010, we have been taking in external debts too.

To public concerns, public officials, from Okonjo-Iweala and other ministers, to the Director-General of the Debt Management Office, Abraham Nwankwo, the retort is that our debt-to-Gross Domestic Product ratio is still well within the international threshold. Often, we have also been told that the debts come with favourable terms, including moratoriums, low interest rates and long repayment periods. Indeed, the DMO continues to assert that our current debt profile is sustainable as it still falls below the 40-56 per cent-to-GDP allowed for an economy of Nigeria’s size. The National Debt Sustainability Analysis 2014 Report, arising from deliberations by the DMO in collaboration with other stakeholder agencies in debt management, recommended that maximum borrowing should not exceed $12.3 billion in 2015, made up of a $7.42 billion ceiling from external sources and $4.94 billion from domestic sources to correspond to the preferred ratio of 60 per cent for external, and 40 per cent domestic.

The DMO website shows that as of September 30, 2014, the total external debts of the Federal Government stood at $58.64 billion, made up of $49.12 billion or 83.7 per cent in domestic debts and $9.51 billion (federal and states) or 16.23 per cent in external debts. Significantly, stakeholders recommended that the government retain the current debt-to-GDP ratio peg of 25 per cent beyond 2015 and up to 2020.

We are not persuaded that the government is utilising debt judiciously as a tool for development. Successive governments have so badly managed resources only to resort to borrowing to meet consumption and feed the prevailing system of graft and patronage while piling up debts. It is wrong to justify borrowing using global thresholds knowing that we run an economy with an acute infrastructure deficit; one that is dependent on crude oil receipts for over 70 per cent of government revenues, where the rule of law is weak and one where excessive corruption derails all development programmes.

An annexure in the NDSA admitted “that a drastic and persistent fall in public assets, caused by a fall in revenue, would, in the long run, increase the risk of debt distress.” Unlike Nigeria, countries like Malaysia, South Africa, Brazil and South Korea have built up infrastructure, diversified and built export-oriented economies and can, therefore, sustain such high debt-to-GDP ratios.

Our wrong-headed choices have been bringing distress ever closer. With oil prices predicted to fall lower than the $65 per barrel on which the 2015 budget has been rashly anchored, more borrowing and future debt are assured. The N943 billion earmarked in a budget of N4.35 trillion for 2015 trumps the N712 billion set aside in 2014 and N591 billion in 2013 for the same purpose. The fact that only N633.53 billion is earmarked for capital projects in 2015 amply demonstrates the unfolding national tragedy.

Now that over 21 per cent of total budget spending will be used to service debts, our officials who talk down to critics of the borrowing binge should re-strategise. We should never forget that the external debts that ballooned to $35 billion by 2005 started with very modest borrowed sums. The $6.82 billion of total external debt stock owed to multilateral agencies, $1.18 billion to bilateral agencies and $1.5 billion on commercial debts as of September 30, may look small today, but will invariably rise when government revenues fall further and inevitable payment rescheduling will result in penalties and interest.

Nigeria is paying the price of relying solely on crude oil for its survival. But the situation can be salvaged. Government should open up the railways, solid minerals, and downstream petroleum, steel and ports sectors by a programme of liberalisation and complete privatisation of all state-owned commercial assets. This will free resources for critical sectors like health, education, environment, water supply and rural development while opening the way for massive private investment and reduce borrowing.

Above all, corruption must be tamed and the rule of law enthroned.

http://www.punchng.com/editorial/returning-to-another-debt-trap/

I don't even know what to say

Job well done by iweala for her IMF /world bank masters.
After removing subsidy (typical IMF move) and squandering/stealing the benefit of that removal , the next step is to start flogging government properties and societal inheritance for peanuts.
They are already talking about privatising the inland waterways.

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