Economy

Senator Lawan and the Raging debate on Nigeria’s debt Profile

Nigeria’s rising debt profile has been an issue of intense debate in the last few weeks. It was the recent PDP Governors Conference that sharply brought it to the front burner.

With increasing national interest, The Senate President, Ahmad Lawan, also felt he should lend his voice to this topical issue. In his comment, Senator Lawan stoutly declared his endorsement for the current strategy of revving up debts to fund infrastructural development and other critical projects.

Senator Lawan argued that it is not feasible for the federal government to tax the citizens further in the face of the present economic situation, and the nation’s infrastructure must be developed.

According to Lawan “You cannot, in my view and judgment, tax Nigerians further for you to raise the money for infrastructural development; other countries do that, but we have serious situations across the country.

“So, you cannot heap taxes on the people. The only option left is for use to borrow responsibly, utilise prudently and economically, and ensure that the projects are self-sustaining; that they can pay back the loans.

“Our options are very limited as a country. First, we do not have the necessary revenue; Nigeria is poor, we should not deceive ourselves. Nigeria is not rich given the circumstances we live in, given the challenges we have.

“Our resources are so low; our revenues are so low; therefore, the option of not doing anything just to sit (because we have no money, we should not go for infrastructure development) is not an option worthy of consideration. You cannot keep the economy stagnant,” he added.

The senate president assured that the National Assembly would give full legislative approval to the Executive loan request to fund the 2021 Appropriation Act before it embarked on a recess in July.

For some time now there have been heated public debates, especially about the level of Nigeria’s indebtedness to China, including claims that Abuja is risking its sovereignty.

Read Also: Nigeria’s Debt to GDP ratio: Any Cause for Alarm?

Information from the Nigerian Debt Management Office reveals that: As at March 31, 2020, the Total Borrowing by Nigeria from China was USD3.121 billion (₦1,126.68 billion at USD/₦361). This amount represents only 3.94% of Nigeria’s Total Public Debt of USD79.303 billion (₦28,628.49 billion at USD/₦361) as at March 31, 2020. Similarly, in terms of external sources of funds, Loans from China accounted for 11.28% of the External Debt Stock of USD27.67 billion at the same date.

These data show that China is not the leading source of funding for the Nigerian Government.

It added that “The Total Borrowing from China of USD3.121 billion as at March 31, 2020, are concessional Loans with Interest Rates of 2.50% p.a., Tenor of Twenty (20) years and Grace Period (Moratorium) of Seven (7) years.

“ These Terms are compliant with the provisions of Section 41 (1a) of the Fiscal Responsibility Act, 2007. In addition, the low-interest rate reduces the Interest Cost to Government while the long tenor enables the repayment of the principal sum of the Loans over many years. These two benefits make the provisions for Debt Service in the Annual Budget lower than they would otherwise have been if the Loans were in commercial terms.”

The DMO noted that The USD3.121 billion Loans are project-tied. The projects (eleven – 11 in number as of March 31, 2020), include the Nigerian Railway Modernization Project (Idu-Kaduna section), Abuja Light Rail Project, Nigerian Four Airport Terminals Expansion Project (Abuja, Kano, Lagos and Port Harcourt), Nigerian Railway Modernization Project (Lagos-Ibadan section) and Rehabilitation and Upgrading of Abuja – Keffi- Makurdi Road Project.

Currently, the impacts of these Loans are not only evident but visible. For instance, the Idu – Kaduna Rail Line has become a major source of transportation between Abuja and Kaduna. Also, the new International Airport in Abuja has improved air transportation for the populace, while the Lagos – Ibadan rail line now commissioned, will ease traffic on the busy Lagos -Ibadan Expressway as well as the Warri- Itakpe rail line.

The projects also have the added benefits of job creation, not only by themselves but through direct and indirect service providers, several of which are Small and Medium Enterprises.

There is evidence in the DMO Office which is instructive that the principal process and requirements for borrowing by the Government are expressly stated in the Debt Management Office Establishment (ETC) Act, 2003 (DMO Act) and the Fiscal Responsibility Act, 2007.

Section 21 (1) of the DMO Act, “No External loan shall be approved or obtained by the Minister unless its terms and conditions shall have been laid before the National Assembly and approved by its resolution” and Section 41 (1a) of the FRA, “Government at all tiers shall only borrow for capital expenditure and human development, provided that, such borrowing shall be on concessional terms with low-interest rate and with a reasonable long amortization period subject to the approval of the appropriate legislative body where necessary”.

The document also shows that the Federal Ministry of Finance, Budget and National Planning works with the Ministries Departments and Agencies under whose portfolio a proposed loan falls and also with the DMO.

Thereafter, the approval of the Federal Executive Council (FEC) is sought. It is only after the approval by the Federal Executive Council that the President requests for the approval of the National Assembly (NASS) as required by Section 41 of the Fiscal responsibility Act, 2007.

More importantly, it is only after the approval of NASS that the Loans are taken and Nigeria begins to draw down on the Loans.

According to the DMO, Nigeria explicitly provides for Debt Service on its External and Domestic Debt in its Annual Budgets. In effect, this means that Debt Service is recognised and payment is planned for. In addition, a number of the projects being (and to be) financed by the Loans are either revenue generating or have the potential to generate revenue.

Nigerians, especially the public servants and organizations are groaning due to overburdened taxes such as the hike in fuel prices, electricity tariff hike, companies’ income tax, personal income tax, capital gains tax, value-added tax, education tax, technology tax, stamp duties, and withholding tax, Sales Tax and Hotel Consumption Tax, among others.

It is also the belief of many citizens that obtaining external loans under any guise tantamount to mortgaging the future of the unborn generation.

However, it is widely accepted that investment in infrastructure is one of the most effective tools for countries to achieve economic growth and development. The question on every lip is why is Nigeria’s situation different?

Critics of such policy are inclined to aver that it is a fall out of a past experience where loans are taken to fund white elephant projects only to be abandoned.

There have also been global concerns about the alleged fraudulent, irregular, and underhand features of Chinese loan contracts with some African countries.

Several observers, including some of the United States Representatives, have warned many nations on what they described as Chinese Debt trap diplomacy, as the Asian nation allegedly uses project financing as a weapon on many developing countries.

Meanwhile, Nigeria has obtained 17 Chinese loans to fund different categories of capital projects, and Nigeria will still be servicing the Chinese loans till around 2038, which is the maturity date for the last loans obtained in 2018.

Since all Chinese loans are tied to infrastructural developments, some of the African nations are reportedly said to have forfeited their stakes in the infrastructure, which they used as collateral, after they defaulted.

For instance, $7.4 billion of Zambia’s total $8.7 billion foreign debt is owed to China, representing a large debt burden, given the relatively small size of Zambia’s economy. It was reported in late 2018 that the Zambian Government was in talks with China that might result in the total surrender of the state electricity company ZESCO as a form of debt repayment since the country had defaulted on the plethora of Chinese loans for Zambia’s infrastructure projects.

One of the most cited examples of alleged debt-trap diplomacy by China is a loan given to the Sri Lankan Government by the Exim Bank of China to build the Magampura Mahinda Rajapaksa Port and Mattala Rajapaksa International Airport. The state-owned Chinese firms’ China Harbour Engineering Company and Sinohydro Corporation were hired to build the Magampura Port for $361 million, which was 85% funded by China’s state-owned Export-Import Bank at an annual interest rate of 6.3%. Due to Sri Lanka’s inability to service the debt on the port, it was leased to the Chinese state-owned China Merchants Port Holdings Company Limited on a 99-year lease in 2017.

Minister of Finance, Zainab Ahmed, disclosed in February that the Federal Government decided to go for a $17 billion loan from China as the World Bank and the African Development Bank’s (AfDB) failed to show much interest in Nigeria during the recession.

In an interview with Channels TV, the Director of Centre for Infrastructure Policy Regulation and Advancement (CIPRA), Lagos Business School, Dr Bongo Adi, posited that Nigeria lacks accountability, transparency, and responsibility to refund most of the loans.

 Adi, noted that the Chinese strategically tie loans to infrastructure and that is to take possession of the infrastructure asset if there is the default, as such asset became their collateral.

Meanwhile, contrary to the belief of some anti-government pundits, Minister of Transportation, Rotimi Amechi said in a forum that the government subsidised the project by 60 percent and that the Abuja-Kaduna, Lagos- Ibadan, Warri-Itape rail lines are a huge success.

The debt burden has, for decades, remained a recurrent decimal in the discourse on the crisis and contradictions of Africa’s development, culminating in debt cancellation from creditors, particularly from the Paris Club.

Minister of Works and Housing, Babatunde Fashola, highlighted in Abuja at the recent NAN Forum, that the country would not make meaningful progress without taking loans to boost infrastructure because that sector contributes to the Gross Domestic Products and contributes to employment.

“So long as you are borrowing to invest and you are investing in assets,” he added.

Fashola declared that the recent loans obtained by the Federal Government would not mortgage the future of Nigerians, stressing that the Western countries also take loans to create super economies.

To maximize the impact of the country’s loans, channelling borrowed funds to key projects and efficient utilization of the funds to solve the purpose by which it was acquired will greatly impact growth on the economy of the country.

Categories: Economy, Features, Nation