The many dangers of senseless debts

Jide Ojo

Jide Ojo

It is no longer news that Nigeria’s economy is in recession. Many Nigerians are cash-strapped. This is as a result of salaries and wages not being paid as and when due, low patronage being experienced by those in business due to high cost of goods and services, non-payment of debts owed local contractors (this was estimated at about N7tn) and unemployment. This dire situation has made many to resort to borrowing to survive. However, many of us who are in the habit of incurring debts need to watch it. The catch is not in borrowing but in repaying the loan. Yes, sometimes, it is inevitable to borrow but in doing so we must think things through.

I borrowed a lot when I was on my housing project. Wisely, I avoided borrowing from the bank, cooperative societies, the Shylock money lenders, or any of such. I borrowed at no interest rate from colleagues, friends and family members. Thankfully, after a long while, I have repaid all the loans. I have at different times borrowed to do other projects and have luckily found ways and means of paying back. The moral of my personal story is to know where, when, and for what purpose one should borrow. A lot of my compatriots still incur debts to host one-in-town weddings, buy wonder-on-wheel cars, and throw lavish funeral and chieftaincy title parties or naming ceremonies. All these ego-massaging debts and vanities lead to heartache and spiral rise in blood pressure.

As it is for individuals, so it is for government. Every government must think through and thoroughly analyse its desire to obtain loan or incur debt. The questions to ask include but not limited to: Are there alternatives to taking this loan? If we must take the loan, at what interest rate should it be? What is the repayment plan? From where should the loan be sourced – bilateral or multilateral organisations? What should be the moratorium?

Information from the Debt Management Office shows that the federal and state governments’ External Debt Stock as of June 30, 2016 was $11,261,887,684.00 with the Federal Government’s share of the debt portfolio standing at $7,607,500,252.76 while that of the states was $3,654,387,431.24. The three most indebted states are: Lagos with $1,431,474,719.70; Kaduna with $225,277,020.12 and Edo with $179,519,864.02. This is just foreign debt profile.

Many of the states are reeling under heavy domestic debts. The question is, what did they use the obtained loan for? Payment of salaries? Overheads? White elephants or productive ventures?

Odilim Enwegbara, a renowned development economist, and I were guests on “Issues of the Moment”, a programme on Radio Nigeria, last Thursday, November 10, 2016. The topic of discussion was, “Foreign Debt and Nigeria’s Economy”. This was against the backdrop of the current attempt by President Muhammadu Buhari to get the Senate approval for $29.9bn external loan between 2016 and 2019. The argument has been canvassed that Nigeria’s debt to Gross Domestic Product ratio is small and that Nigeria is credit worthy and should go for foreign loans to fix critical infrastructure. While my co-panelist argued in support of the proposed loan, I was vehemently against it.

My ground of argument against further loan includes the following: Previous loans have not been demonstrably used judiciously. Rather much of it was diverted to private pockets with little or nothing to show for the projects for which the loans were obtained in the first place. I was shocked to learn that Nigeria actually took a loan to host FESTAC ’77 which was a jamboree. Two, government should account for additional revenues received from the increase in the pump price of petrol from N87 to N145 per litre, N50 stamp duty collection by banks on every banking transaction, looted funds recovered and the Treasury Single Account savings. Three, government stands to rake in huge revenue from sale of white elephants embarked on that have become a drainpipe on our resources. Over 11,886 uncompleted Federal Government projects were discovered by the Alhaji Bunu Sheriff presidential assessment committee in 2012. I have earlier canvassed the audit of these projects to be done. While those that are liabilities should be auctioned off, those that will add value to our economy should be funded to completion from the sale of   proceeds from the white elephants auctioned.

Four, with the current attempts by the Federal Government to reduce the cost of governance, bring more people into the tax net, and block revenue leakages in the bureaucratic system, there should be more money at government’s disposal to be used for infrastructural development. Public-Private-Partnership infrastructural finance model is also a viable option and is better than taking more foreign loan. Under the PPP, government could sign a Memorandum of Understanding or partnership agreement with the private sector to Build, Operate and Transfer. This will enable the investors to recoup their investments with profit. Concessioning agreement as is being mooted over some of the country’s airports will also ensure injection of private sector funds and better management of some of the hitherto government enterprises.

It cannot be over-emphasised that improving the ease of doing business in the country will attract foreign direct investment. Foreign and local investors can therefore be incentivised to take on the provisioning of the critical infrastructure like electricity, roads, water, refineries, schools, hospitals and many more. Proper commercialisation and privatisation will reduce government funding and make the need for foreign or domestic loan less attractive.  As earlier said, I am not convinced that Nigeria needs foreign loan at this point in time let alone a $30bn loan. Nigeria in March 2016 exited the Paris Club of debtor countries after paying $12.4bn in order to get a “debt relief” of $18bn. As the story goes, Nigeria originally borrowed about $10bn and still owes $30bn even after $17bn had been repaid! Such is the abracadabra of the multiplier effect of this booby trap called external loan. So much resource will be needed to service the debt (that alone will deplete our external reserves). Failure to service the debt will lead to the imposition of compound interests which may end up making our dear country pay much more than the initially negotiated interest on loan.

That’s part of the reason I don’t support this foreign loan. Taking loans to fund social intervention schemes like school feeding programme or sponsorship of pilgrimage or building new government house or governor’s lodge will be counterproductive.  If we must borrow at all, I totally endorse the 10 point practical guide suggested by my colleague, Eze Onyekpere, in his column in this paper on Monday, November 14, 2016 entitled, “The $30bn presidential borrowing request (2)”. I do hope we think about the future generations of Nigerians before we accumulate a gargantuan debt profile.