FG defies IMF, mulls $46bn external loan for rail, road projects

With the external debt of about $18.9 billion and domestic debt of about N21.725 trillion,Nigeria is indeed sitting on a time bomb that may explode soon. But recent pronouncements by the Transportation Minister Chubike Amaechi suggest that the President Muhammadu Buhari administration seems not to see any dangers posed by this looming debt trap. At a public function in Papalanto, Ogun State last week, Amaechi hinted that the President has granted him an express approval to scout for funds from countries and international lenders to fix rail and road infrastructures across the country.

The Minister who made this disclosure when he jointly supervised the ongoing rail construction in Papalanto with the Minister of Information, Alhaji Lai Mohammed, explained that the president has given him approvals to borrow $46 billion from Russian Exim Bank and an undisclosed amount from India to complete the railway project.

This is in spite of the redflag by the International Monetary Fund (IMF) over increasing borrowings by sub-saharan Africa Central Banks.

IMF also warned countries to also abstain from providing structural development financing because it can become riskier to financial stability.

In its new Regional Economic Outlook for sub-Saharan Africa titled: ‘Time for a policy Reset’ IMF said that rising fiscal deficits and more costly external and domestic financing conditions are increasing macroeconomic vulnerabilities and, in some cases, impeding central banks’ pursuit of their primary objectives, such as price stability.

On commercial banks, the IMF argues that sovereign risks associated with large commercial bank exposures to government debt and related governments’ rollover risks have increased in some cases, posing risks to financial stability.

“Central banks should limit the use of advances to government to the mitigation of short-term financing constraints and avoid easing commercial banks’ liquidity constraints with a view to facilitating lending to the government,” IMF director for African Department, Abebe Aemro Selassie, said while presenting the Regional Economic Outlook for sub-Sahara Africa in Accra, Ghana.
Since President Muhammadu Buhari took over power on May 29, 2015, Nigeria’s debt has increased by over N10 trillion. The debt profile now stands at about N22 trillion or $73 billion.

This increase of over 80 per cent in less than three years exports insist is quite significant considering May 29, 2015, the nation’s debt profile stood at N12.06 trillion, while between 2015 and 2017, it has gone up to N22 trillion.

Even the Director General of Debt Management Office (DMO), Ms. Patience Oniha recently told members of the National Assembly that as of September 2017, the debt stock for both the federal and state governments had risen to over N20.373 trillion. She said that the total debt profile as of early June 2015 was approximately N12.06 trillion.

In addition to this total, in the Federal Government in November 2017 floated the $3 billion Eurobond; a N10.69 billion Green Bond in December 2017 and another $2.5 billion Eurobond early this month, all totalling another N2 trillion.

Prior to the Paris Club debt relief in 2004, Nigeria’s overall debt stock was $46.2 billion with external debt standing at $35.9 billion while the stock of the domestic debt amounted to $10.3 billion resulting in a total of about $46.2 billion.
At the World Bank/International Monetary Fund annual meetings in Washington DC, last October, both the World Bank and IMF raised the issue of Nigeria’s rising debt profile, warning that should there be a slump in the price of crude oil, Nigeria’s main foreign exchange earner, the consequences might be devastating.

Nevertheless, the Minister of Finance Mrs Kemi Adeosun put up a stout defence to justify the debts.
According to her, Nigeria’s debt-to-GDP ratio is one of the lowest. We are at 19 per cent, but most advanced countries have over 100 per cent.

“I am not saying we need to move to 100 per cent, but I am saying we need to tolerate a little more debt in the short-term to deliver the rails, the roads and power so as to generate economic activities, jobs, and revenue, which would be used to pay back the debt.

“What we are trying to do is to create enough headroom to invest in capital projects that the country desperately needs.
At 19 per cent, Nigeria’s debt to GDP is healthy but the real issue is the debt to revenue ratio, which is what actually determines the ability of the country to repay its debts.

Apparently encouraged by this assurance, Buhari was reported to have given his ministers a leverage to borrow more for development purposes.

Speaking to newsmen last week when he inspected the ongoing railway track construction in Papalanto, Ogun State, Minister of Transportation, Mr Rotimi Ameachi confirmed that he has received approvals from the president to borrow from countries and international lenders to develop the rail and road infrastructure.

According to him, the government was already negotiating with Russian Exim Bank for a loan of over $46 billion.

The Minister said that the Federal Government does not have the money to develop rail and road infrastructure but would go and source the money at all costs stressing that the construction of the raillines will reduce the pressure on the roads.
On the inland rail, he said that the Federal Government is discussing with India for the construction of Lagos-Calabar, Port Harcourt to Maiduguri projects, which, he said, have been approved by the president.

“I had to go to India because of coast line. That is Lagos-Calabar. We have got presidential approvals to look for money for Port Harcourt to Maiduguri project.

“I was in India to look for money and there are people talking to Russian Exim Bank. For now, the Chinese are funding Lagos to Kano. Any of them that gives us money for Lagos to Calabar and Port Harcourt to Maiduguri we will take. The president has approved that we should look for that money” he said, adding that the three raillines would not less than $46 billion.

We don’t have the money in our pocket. We just have to source for the money” as government is under pressure to complete the standard gauge and the government will solve that political pressure and rehabilitate the narrow gauge

When we conclude the main construction then GE will bring in $2.7 million to do a total rehabilitation of about $700 million and manage and run that track with about $2 billion. That means they have to buy new locomotives for narrow gauge. They have to buy new coaches for narrow gauge.

But according to the former Deputy Governor of Central Bank of Nigeria (CBN), Dr Obadiah Mailafia, Nigeria’s debt is already very high and the government should stop borrowing. If they must borrow, it should be for only projects that can pay their way back and not for social projects. “There is a huge deficit between demand and the government’s revenue. The gap requires borrowing in some form. There are many types of borrowings— FGN Bond, treasury bills. The external debt now is around $50 billion. That is the external component of the debt. The total debt now is about N7 trillion. It is very huge and the overall debt level is very huge.

What the IMF is saying is that you borrow only for projects that have a guarantee and have a high return on investment and are able to pay their way back such as harbours, railways and things like that.

For me it is very wrong to borrow for social projects. During the civil war, we did not borrow N1. In the whole reconstruction of the east we did not borrow N1 from abroad. Why is it that in peace time we are borrowing?
Government should stop borrowing. They should source for it domestically. They should borrow for only projects that have a guarantee on investment. IMF is not saying don’t borrow at all. Borrow for only projects that you are sure have return on investments—calculable and predictable returns on investments” he advised.

For his part a development economist, Mr Odilim Enwegbara, while accepting that Nigeria should borrow for capital projects, however, warned that part of the money should not be used to fund elections.

“It is understandable why IMF is not happy. They (African countries) are borrowing from other people who are lending cheaper and longer term and with less conditionalities. So, it is understandable why IMF is not happy.

Two, it depends on the borrowing. If they are borrowing for capital expenditure, there is nothing wrong with that. But if they are borrowing for consumption, that is dangerous. I think Nigeria is borrowing for consumption. That is the problem. Borrowing for consumption means that you won’t be able to pay back the loan because it is not invested.

To service such a loan you have to borrow again or you have to have a higher revenue to pay. But because you are not borrowing for investment you cannot have a higher revenue to pay. So, it is dangerous borrowing. Of course, as you rightly said, the more they borrow the more they divert part of the money for 2019 elections.

Commenting on Nigeria’s rising debt profile, a budget analyst and economy consultant, Mr Eze Onyekpere condemned the tendency of rushing to the international lenders instead mobilizing resources from local investors.
He warned that debt to revenue is so high and can no longer be sustainable.

“The law is clear on what you need to do with monies you get from debt. It is for capital expenditure and also for human capital development. But if you look at the revenue profile, it is not even debt versus GDP challenge, it is debt versus revenue because you are paying back the money you borrowed with your revenue. Debt to revenue now is on the high side. So, it is no longer sustainable for us to continue borrowing particularly for sectors that are not going to generate foreign exchange for us.

So, I think that instead of focusing on sovereign debt to fund some infrastructure projects, we must have to rejig that process and now begin to take investors who will invest their money. That is better than insisting on sovereign debt guarantee which at the end of the day we may find difficult to fulfill.

So, I think that we focus more on investors both foreign and local and having special purpose vehicle through which you can get money even from investors locally and then we mobilize these resources and use them to build our infrastructure.

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