Reactions trail proposed AfDB loan | Independent Newspapers Limited
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Reactions trail proposed AfDB loan

Posted: Apr 9, 2015 at 6:00 am   /   by   /   comments (0)


The recent declaration by the African Development Bank (AfDB)  that Nigeria is West Africa’s largest market with great potential to be a main driver of regional integration considering its population, contained in  the West African Mid-Term Review and Regional Portfolio Performance Review Paper 2011 – 2015 of the AfDb has drawn arguments from economic experts in the country that there is more, yet undisclosed reasons by the federal Government in its steps to source $2 billion  loan to assist in the implementation of its policies and programmes this year. In this special report, Sylvester Enoghase, Andrew Airahuobhor, Emmanuel Okwuke,  Abel Orukpe, Bamidele Ogunwusi and Olamide Bakare examines the issues and reactions of Nigerians to the loan.

Mixed reactions have continued to trail plan by the current administration to take two billion dollars African Development Bank (AfDB) loan requested by the outgoing government of President Goodluck Jonathan to finance the 2015 budget.

An investment advisor at Regency Assets Management Limited, Mr.Adegbuyiro  Adeniyi said the decision to borrow was in the best interest of the country’s  economy. He noted that such a loan could only be incurred to finance infrastructural projects.

According to Adeniyi, the need to borrow to finance the budget at the moment was quite critical as this would enable pending projects, which the outgoing government could not complete to be completed in due time.

To him, governance is a continuum and as such, borrowing to embark on developmental projects will not be out of place.

He said” Borrowing in itself is not bad because governance is a continuum. For me, once there is sincerity of purpose, I see no reason why money should not be borrowed to undertake meaningful projects. Absolutely, there is nothing wrong provided it is geared towards achieving a good purpose.”

Asked if this will not incur huge cost on the incoming government, Adeniyi said there was nothing strange about borrowing stating that what it is of utmost importance is for such loans to be targeted at particular projects for all the overall interest of Nigerians.

”It is not going to incur cost. If you take a look, you will realize that we are going through a lot of reforms and transitions. In a time like this, there is a sense in borrowing. I guessed what informed the borrowing is the fact that the present Minister of Agriculture is being pencilled down to become the President of African Development Bank. So, it is believed that once the loan is facilitated, the country would enjoy certain privileges immediately he is appointed to the position. In a nutshell, I see it as a good thing as its availability would aid a lot of development”

The creative director of Brand IQ, Muyiwa Williams shared similar position with Adeniyi. He explained that it was the best decision to take at this time considering the fall in price of oil price at the international market and depreciation of the naira.

“We all know that the economy is in bad taste and the infrastructure is virtually unavailable. So, for a government who is really concerned about the well being of its people, it must find appropriate way to finance its budget since the budget is running at a deficit. Although it is very tough for the country, reasons demand that such step should be taken to avert economic gloom,” he said.

Mr. John Ajayi

Mr. John Ajayi

The Chief Executive Officer of Marketing Edge Magazine, Mr. John Ajayi warned the government of the impending danger of borrowing the loan. He said that there is likelihood that the said loan may put incoming administration into deep economic crisis.

Recalling that not too long ago, the nation has had its loan written off due to the fact that many of such loans were not put into what it was meant for, which eventually became a huge burden to the country. He said it was unreasonable to take such loan at this time urging government to cut cost on their spending in order to finance any project that needed to be completed upon the expiration of their tenure.

He said” We need to avoid the situation where we now find ourselves in those difficult periods when we are asking for debt to be written off. As you can see, there is austerity, times are difficult. Save for the emergence of Buhari recently, the exchange of naira to a dollar as well as the stock market was in a downward slide. We are being informed to tighten our belts to save us from economic gloom. As we speak, we don’t know what become of the state of the economy. “

He said according to some economic analysts, the economy is in bad taste such that whoever takes over would have a lot to bear before embarking on any meaningful project. Besides, if for any reason, “I don’t think it is the right decision because this same government has failed to manage resources to the extent that you can no longer trust their intentions.”

He noted that so much has been expended on the general election campaigns alone. This is the most expensive elections ‘we have seen in recent time.  Although some people have attributed extraneous factors to the downward slide in the value of naira to dollar, but I think much should also be adduced to cost incurred for the election.”

Asked what should be done by the incoming government in the event that the present government go ahead with its plan, Ajayi said steps should be taken in ensuring that the money borrowed are judiciously used noting that in situation where this does not happen, the government upon swearing in should probe it and sanction whoever is involved to serve as a warning that it was not going to be business as usual.

He said “If they insist on taking loan, let them go ahead. But the onus now lies on incoming government to see to the implementation of the project for which the money was allocated. However, in situation where the money was not judiciously used, government must as a matter of urgency institute a probe that will lead to imposing sanctions and punishment for those found to have corruptly enriched themselves in the process. Once that is done, we should expect that it will send warning signals to those who may think that it is going to be business as usual”

Also speaking, a leading partner at Kishi lagos, a Public relations firm based in Lagos, Mr Wale Okoya said that the government of the day has no business borrowing money when it is almost less than two months to close its business.

To him, it is one action aimed at diverting funds for the sole benefits of some beneficiaries. Although he said government’s intention to borrow could be in the best interest of completing certain projects, he noted that taking such action at this time was quite suspect.

Also responding, the acting director general of Nigerian Association of Chambers of Commerce, Industry, Mines and Agriculture (NACCIMA), Mrs. Janet Omisore said it was needless taking such action at this time since the government in power is about ending its term in office.

She however stated that it was the responsibility of incoming government to do a thorough appraisal before considering whether to take the loan or not.

She said” Considering the fact that this administration is winding down, it is not proper to borrow now. The decision should be left to the new government to appraise all options internally and otherwise on how to finance the budget. The incoming government needs to review the budget and make necessary arrangement on how to finance the budget based on the reform programmes that may be introduced by the incoming government.”

Rasheed Alao, of the Department of Economics, Adeyemi College of Education, said the decision to borrow money by the out-going administration demonstrates a high point of desperation on the part of a government whose tenure is winding down.

“I think this is a joke. I know that the Senate or the National Assembly will not approve it and it will end up in futility. It is not decent for government leaving in few weeks to think of borrowing huge sum of money.

“There are steps to be taken before a foreign loan is approved by the lending bank, group or organisations. No serious organisation or bank will give a government that is winding down such a loan”

Chief Timothy Oba, a private developer, said the government is not sincere with its desire to borrow new money now because Nigerians are groaning with the previous loan already as regards the prosecution of war against insecurity.

“Our leaders are not sensitive. The decision is against the people and we must as a country resist the move. This government should not take us for granted,” he said.

Speaking on the issue, the Executive Director of Civil Society Legislative Advocacy Center (CISLAC), Auwal Musa Rafsanjani, said that the external loans may further worsen the country’s economy.

He pointed out that the Federal Government’s request for external loans was due to a lack of financial discipline and uncontrolled government expenditure.

According to him, “The government needs to be focused and disciplined to channel its resources to the appropriate purposes for which it was meant for”.

The civil society activist argued that one of the effects of external borrowing is that it would increase the nation’s total debt profile.

He said that a lack of judicious use of the previous borrowings for infrastructure growth led to the nation’s rising external debt profile.

He added that external loans taken in the past were not effectively used for amenities and infrastructural development for which they were meant for.

According to him, though there is the need to fast-track infrastructure development to ensure the nation’s economic growth, the onus lies on the incoming government to do it. He however said: “The increased government borrowing by the current Government, without recourse to the volatility in the exchange rates could force the private sector out of the economy”.

Secretary General of Trade Union Congress (TUC), Comrade Musa Lawal argued that external loans sometimes were incurred to finance increase in the government expenditure. He explained that borrowing was not bad, but should be carried out with caution, adding that government borrows to finance investment for economic growth.

“The effect of external borrowing is loss of economic activities which can be seen in term of under-utilisation of the nation’s resources, ” he said, and advised the Federal Government to look inward in creating more revenues by harnessing the non-oil sector, which had been neglected for long.

He said that unemployment would be on the increase since money borrowed were not effectively used for infrastructure building that could have attracted investors willing to create jobs. He noted that cost implication of the rising external debt profile in the country would lead to viciously cumulative debts in the near future and that it would also compound the external debt service problems of the nation.

He said “The international community and those that understand the challenges of economic fundamentals should respond passionately to this challenge of trying to get government to be more responsive in the way it seeks external loans”

“Our concern is that some of the projects these loans were obtained for are abandoned and diverted to other projects”, he said.

He however said that borrowing would have been justified if the loans taken in the past were used for the projects that they were obtained for.


Ministers reaction to Nigeria’s debt

However, in an effort to clarify Nigeria’s debt position, the coordinating minister for the economy, Dr. Ngozi Okonjo-Iweala said “Let me say at the outset that no one in government is supportive of a Nigeria that returns to a high state of indebtedness. On a personal note, having gone through tremendous stress during the quest for Paris Club debt relief, I am committed to a Nigerian economy that is fiscally prudent, balances its books and remains at a low state of indebtedness.”

She said, Nigeria’s overall debt is comprised of external and domestic debts. “The external debt is typically owed to foreign creditors such as multilateral agencies (for example, the Africa Development Bank, the World Bank, or the Islamic Development Bank), to bilateral sources (such as the China Exim Bank, the French Development Bank or the Japanese Aid Agency), or to private creditors such as investors in our Eurobonds.”

She said the domestic debt, however, is contracted within Nigerian borders, usually through bond issues which are then purchased by Nigerian banks, local pension funds, and other domestic and foreign investors. The resources raised typically go to help fund the budget or other domestic expenditures, such as infrastructure projects. We also have some contractor arrears, and other local liabilities which are normally handled through the budget.

Both federal and state governments borrow domestically and externally. However, no state government can borrow externally unless guaranteed by the Federal Government. “Similarly, state governments’ domestic borrowing is subject to federal government analysis and confirmation – based on clear criteria and guidelines that a state can repay based on their monthly FAAC allocations and internally generated revenues (IGR).”

The minister said, “As a nation, we have had a difficult history with debt. As such, no one can forget the challenging times we went through from 2003 to 2005 trying, in the end, successfully to get relief on our large external debt. Neither the government nor any Nigerian wants a repeat of the country’s past history of large debts.

That is why the current President Goodluck Jonathan administration, the Legislature, the Ministry of Finance, and the Debt Management Office, are very focused on a conservative and prudent approach to managing the national debt. Our current approach balances Nigeria’s needs for investment in physical and human infrastructure with a strong policy to limit overall indebtedness in relation to our ability to pay. Above all, any debts incurred must go for directly productive purposes which yield results that Nigerians can see.”