The $30bn Presidential Borrowing Request (1).

It is imperative to begin this discourse by stating that economic and fiscal governance is a serious business and a matter that requires the best of national efforts. The design, formulation and implementation of economic and fiscal policies reflect on the standard of living of any society and its ranking in the order of civilisation and development in the comity of nations. Nigeria is no exception to this aphorism and cannot therefore seek to do things differently from established national and international norms.

Last week, the Senate literally threw away a borrowing request from President Muhammadu Buhari. By a letter dated October 20, 2016, and addressed to the President of the Senate, Bukola Saraki, and Speaker of the House of Representatives, Yakubu Dogara, entitled, “Request for approval of Federal Government 2016-2018 external borrowing (rolling) plan”, the President sought approval to borrow a total sum of $29.960bn. The President indicated that the projects for which he sought borrowing approval cut across all sectors with special emphasis on infrastructure, agriculture, health, education, water supply, growth and employment generation, poverty reduction through social safety nets and governance and financial management reforms among others. Proposed projects and programmes were for the sum of $11.274bn; special infrastructure projects amounted to $10.686bn; Euro bonds of $4.5bn and Federal Government budget support of $3.5bn. With the exception of the projects for the North-East zone, the letter provided no further details. Indeed, the request letter referred to an attached draft of the Federal Government 2016-2018 External Borrowing (Rolling) Plan which was actually not sent to the National Assembly.

What is the position of our fiscal laws in respect of a request from the President to the legislature in terms of approving a borrowing plan? A review of extant laws will provide a clue as to whether the legislature was right in refusing the request and what needs to be done if the President intends to represent same. The Fiscal Responsibility Act in Section 41 states that the framework for debt management during the financial year shall be based on the following rules vis: 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 reasonably long amortisation period subject to the approval of the appropriate legislative body. The Act further states that any Government in the Federation or its agencies and corporations desirous of borrowing shall specify the purpose for which the borrowing is intended and present a cost-benefit analysis, detailing the economic and social benefits of the purpose to which the intended borrowing is to be applied. Also, the Government shall ensure that the level of public debt as a proportion of national income is held at a sustainable level as prescribed by the National Assembly from time to time on the advice of the minister of finance.

Against the background of the provisions of this Act, there are no details of the projects and programmes for which borrowing is sought. Neither is there any evidence of the cost-benefit analysis of the projects. Whether the borrowing is on concessional terms is also not stated and nothing was said on whether the debts will be sustainable in the short, medium to long terms. Thus, this was a request not cognisable within the letters of the Fiscal Responsibility Act. And to ask for an anticipatory approval without the details further makes the presidential request void from the beginning.

In terms of sustainability of our debts, we seek to add $30bn in one fell swoop to our already existing $61bn national debt to take it up to $91bn which is a 50 per cent addition in two years. If previous governments had been borrowing in this geometric proportion, we would not have had any elbow room for this new request. Why not build up the indebtedness gradually and see how effective the projects are in solving the economic challenges for which they have been proffered as a solution?

The proposed borrowing is denominated in foreign currency, mainly dollar terms. I am sure many “experts” are going to come up with our relatively low debt to gross domestic product and compare our ratio with other countries. But this is where they miss the point. In Nigeria, you have the oil and gas sector generating over 90 per cent of our foreign exchange receipts but contributing less than 10 per cent of the GDP. The same sector was responsible for over 70 per cent of the resources shared between the three tiers of government in previous years but now still provides a sizable share of the Federation Account receipts. If the debt to GDP argument is to be taken seriously, why is 90 per cent of our GDP not contributing meaningfully to earning foreign exchange and funding the Federation Account? Until we activate this virtually dead 90 per cent of the GDP, we cannot use the same as a basis of debt to GDP. The reasonable thing to do is to use that component that will contribute to our ability to pay back the debt as a basis for calculating our ratio.

The fiscal authorities should be more interested in calculating debt to revenue ratio. For the Medium Term Expenditure Framework 2017-2019, the projection of retained revenue in 2017 is $4.169tn while the debt service is $1.311tn. With debt service at about 33 per cent of retained revenue before the new borrowing is taking into account, we may end up using 50 per cent of retained revenue for debt service. Let us hear the experts who will claim that this is sustainable. Again, in the usual Nigerian practice, the retained revenue projection may be overly optimistic and may not materialise if we continue with our socio-economic trajectory. The expected oil revenue may not hold if the Niger Delta crisis is not resolved. Thus, whilst the debt is not subject to the vagaries of externalities, the revenue projection can be affected by a thousand and one factors. For 2016, we have already paid over N1.1tn as debt pay back whilst releasing only N753bn for capital expenditure and for which there is no guarantee that whole capital expenditure sum has been cash backed. How sustainable in terms of ability to repay is this new borrowing arrangement? Definitely, the fiscal provisions of the MTEF 2017-2018 will need to be reworked as it has not taken cognisance of the new debt proposals.

What exactly are we borrowing for? Are the projects for which we seek to borrow regenerative enough so that they can help the economy generate the needed foreign exchange to pay back the debt. This question is pertinent considering the foreign exchange risk of borrowing in dollars at a time the naira is fast losing value vis-à-vis major foreign currencies. By the time of repayment, the naira may have lost much value and this will make the repayment a heavy burden for the treasury.

To be concluded.

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