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Increasing National Debt: NASS Beware! By Les Leba
The Senate on Wednesday, 21/1/2009 brushed aside the initial opposition from their ranks to approve President Yar'Adua’s request for $500m naira denominated bond from the international capital market. Thus, the government obtained Senate approval to borrow the naira equivalent of $500m, which would be repaid at the current naira exchange rate in 2019! Indeed, when the proposal was initially tabled inYaradua’s 2009 budget presentation to the National Assembly (NASS) in December last year, the naira equivalent of this loan was N60bn; however, in view of the ‘deliberate’ devaluation of the naira in the last four weeks, the naira equivalent may have increased to N75bn. If the economy continues to be mismanaged and our export earnings are as usual stolen by treasury looters or frittered away on white elephant projects, it would be fair to assume that we may actually be repaying a capital sum of over N150bn in ten years, if our naira depreciates by about 100% to N300/$1. This may not be an unusual depreciation, if we recognize that the naira was barely N80/$1 upto 1998!
In the event that our government is currently paying about 10% interest on its short-term borrowings with treasury bills, we may assume that the fresh long-term loan would attract a minimum annual servicing cost of over 10%! If the current rate on federal government naira bonds is also anything to go by, the cost of borrowing may approach 15% per annum in spite of the availability of international multilateral agency loans, which attract much less for sovereign borrowings! We recall that we exited our debt burden with the Paris and London Clubs after shelling out over $13bn of reserves and at least two former Finance Ministers (in spite of their IMF antecedents) have described this payout as a simplistic and ‘primitive’ financial strategy. Indeed, Idika Kalu, in a Guardian interview published on 7/12/08 indicated that, our reward of improved credit rating had “more to do with our increased cash flow from increasing oil prices, not because we paid our debts”.
Other notable analysts also queried the value of the initial loan burden insisting that the government had never been able to show how the loan was accumulated in the first place, and maintained that the atrocious and heavy penalty charges were inexplicable! Worse still, no one could identify the successful projects, if any, that the loans had funded. It was against this unsavoury background that the Senate Committee on appropriation, rightly, some would say, objected in December 2008 to Senate approval for a fresh loan application for $500bn by Mr. President. The Senate Committee headed by Senator Omisore, called for caution in incurring such ‘foreign’ debt and regretted that even after the re-emergence of non-military rule, in 1999, NASS had never until now been brought into such loan process as required by the constitution.
In support of the veracity of this observation, we recall the loans unilaterally consummated by the former President from the Republic of China for the power sector and the reengineering of the Nigerian Railways. On the domestic front, we also recall the rapid accumulation of local debts particularly through bond issuance by almost N2000bn within four years, without recourse for NASS approval. There is practically nothing to show for these loans, and it seems that these loans were incurred specifically for non-tangible purposes with dubious and immeasurable yardsticks!
Indeed, the Debt Management Office (DMO) had indicated in earlier offers that the loan objective was to deepen or create a market for government long term borrowings, and also set a benchmark for other medium to long term loans in the capital market. In any case, since both objectives cannot account for the actual spending of the huge sums of monies borrowed, the mind boggles as to what ends the funds were actually applied! It certainly could not be for funding federal budget deficits, as our revenue from all sources exceeded our expenditure for the past four years! One can only imagine that the funds were simply stored idly in CBN vaults or accounting records in spite of annual interest payments of between 12 – 17% for such
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