Nigeria’s debt: The House vs Okonjo-Iweala In a recent online interactive programme with Nigerian youths, the Finance Minister and the Coordinating Minister of the Economy, Dr. Ngozi Okonjo-Iweala, gave the assurance that Nigeria does not have a debt problem, as the ratio between our debt and our nation’s total output (GDP) is a mere 21 per cent, which compares favourably with 40 to 60 per cent benchmark for emerging economies and more favourably with the United Kingdom and United States’ debt to GDP ratios of 89 and 90 per cent respectively. The Honourable Minister also noted that despite the reduction in domestic loans, which form the lion’s share of annual debts, from N852bn in 2011 to N522bn in the 2014 budget, unexpectedly, however, debt service charges rose to about 20 per cent of total expenditure, and remain the highest sectoral allocation, well beyond the provisions for education, health and agriculture in annual budgets. Notwithstanding, the House of Reps Committee on Finance is concerned that in place of the Honourable Minister’s promise to reduce recurrent expenditure during her second coming, consumption spending has, in fact, conversely risen from below 70 to 76 per cent, while capital expenditure, despite its social multiplier impact, has regrettably fallen to 24 per cent, in the 2014 budget. The Finance Minister, however, explained that the increased recurrent expenditure was instigated by unplanned wage increases, during Segun Aganga’s tenure as Finance Minister, between 2010 and 2011. Evidently, the savings from the privatisation of corruption-ridden public enterprises and the exclusion of a sizeable population of ghost workers from the treasury’s payroll and the expected savings from the established due process for public procurements, have not compensated for the alleged wage increases since 2010. The House is also concerned that despite the reduction of deficits between 2011 and 2014, and in spite of the recognition of the oppressive burden of prevailing high cost of borrowing, additional loans were unexpectedly obtained to propel total domestic indebtedness from N5.6tn, when Okonjo-Iweala came into office, to over N7.1tn today. Consequently, the House Committee is unimpressed by the celebrated insignificant decline in deficits, and indeed, believes that Nigeria’s domestic cost of borrowing remains one of the highest in the world; the House, therefore, demanded that the true cost and the existing procedure for accumulating and servicing our debts should be more clearly defined, in the answers to the 50 questions set for the Coordinating Minister of the Economy. Besides, the House Committee similarly contends that the fiscal deficits and associated borrowings may have been eliminated, if crude oil benchmarks were not deliberately understated in annual budgets. Government’s faux pas in borrowing with such oppressive cost to fund alleged deficits may provide the answer for the growth in the ratio of debt service charges to total budgeted revenue from 14 to almost 20 per cent! It is, however, inexplicable that the hundreds of billions of naira budget deficits, which were funded at such abnormally high cost for sovereign debts, existed simultaneously with CBN’s over $40bn idle reserves and over $8bn additionally warehoused annually as revenue surplus, in a designated Excess Crude Account with zero yield. This surely cannot be best practice in fiscal management; besides, Nigerians must wonder why the Honourable Minister considered a $36bn debt burden as crisis level in 2005/2006, because of high service charges, but now, curiously, approves of our current primary debt stock of over $50bn, despite the oppressive service charges that regrettably mirror the allegedly perilous debt overhang of about a decade ago; indeed, when existing external debt of about $10bn and AMCON’s N5tn ($30bn) debt are also factored in, our debt stock may actually exceed $90bn and rise above 40 per cent of GDP, even if we exclude the additional N400bn (about $2.5bn) also borrowed to pay PHCN workers after the privatisation of that company. Thus, if the currently designated N100bn annual sinking fund is our only provision for debt liquidation, contrary to the Finance Minister’s assurance to our youths, we may actually leave a legacy of an expensive debt burden for future generations. Regrettably, also, Nigerians largely agree that these huge and expensive loans have left minimal positive social impact, especially when government finds it convenient to diffuse these loans in myriad budget applications rather than tie them to specific tangible or verifiable projects. The Honourable Minister’s plan and House Committee’s desire to redress our loan portfolio in favour of cheaper external debts, obviously may not have considered the inherent risk regarding the ease with which international portfolio investors in our unusually highly profitable government bills and bonds can take out their money with destabilising consequences on our exchange rate and our economy. Certainly, a more creative, patriotic and positive approach for reducing interest rates would be the adoption of a monetary strategy that would bring down domestic cost of funds to the same level as the more desirable external loans, without the omnipresent fear of capital flight. However, the following is an excerpt from Dr. Okonjo-Iweala’s somewhat staccato response to a question, in a recent interview on the unusually high interest rates in Nigeria: “… we are not happy about high interest rates! As I said before, it is tough for our entrepreneurs to function. …we need to interrogate why. Structurally, what is the issue? And we are not willing to ask our banks that question. Deposit rates are extremely low and Nigerian savers are earning as low as five per cent and three per cent. …Private sector credit has gone down. I plan to have a meeting with the banking sector operators to really understand what is going on (after how many years in office, one may ask). …But I am puzzled as to why. I think there is a structural problem within the banks and our banking system and their pricing.” (Interview with ThisDay Live, 11/08/2013). There is nothing to suggest that the Honourable Minister is still any wiser; however, it is evident that the prevailing high interest rates in Nigeria are the result of perennial excess liquidity. It is not clear if Dr. Okonjo-Iweala is aware that unceasing naira surplus in the Nigerian economy actually instigates high interest rates, inflation and increased government borrowing. The Honourable Minister may not also be aware that CBN’s substitution of naira allocations for dollar revenue is indeed the evasive structural cause of excess naira supply and the attendant adverse consequences on higher cost of funds, a weak naira exchange rate, increasing fuel subsidy values, burdensome debt accumulation and horrendous debt service charges; meanwhile, the adoption of dollar certificates for payment of dollar revenue will minimize the burden of surplus cash, and reverse the above unwholesome consequences on the economy. Save the Naira, save Nigerians!!
Posted on: Mon, 17 Mar 2014 14:59:26 +0000
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