DMO And the Country’s Rising Debt Profile

Daily Independent (Lagos)

22 May 2011

editorial

We refuse to be convinced by the arguments recently put forward by the Director-General of the Debt Management Office (DMO), Abraham Nwankwo that there was nothing to worry about Nigeria’s current debt profile given that it is still within sustainable limits. In his speech at the opening of DMO’s Debt Sustainability Analysis workshop, Dr. Nwankwo had argued that the country’s total debt stock put at $5.227 billion (external) and N4.869 trillion (domestic) as at March this year, was still within the conservative debt to GDP ratio of 25%, which it put for itself as against the global acceptable debt to GDP ratio of 40%.

We note that the DMO was created essentially to ensure judicious sourcing and application of Nigeria’s national debt. However, its failure is evident in the steady rise in the country’s domestic and external debts within the years of its existence without commensurate impact in the quality of lives of the citizens for who these debts have been incurred. Or can anybody point to any single project directly financed from any of these loans? No matter how much the DMO tries, it cannot convince Nigerians on the reasons for the country’s burgeoning debt profile, since we fail to see in concrete terms what these monies have been used for. Have they been committed to any constructive programme-based projects capable of helping in liquidating the loans in future?

We see no relationship between public debt and economic performance as the country borrows not to invest but to finance either budget deficits or recurrent expenditures. Elsewhere term loans are tied to specific projects such as dams, mass housing schemes, provision of educational infrastructure or mass transit, but not in our case. It is also interesting to note that even as we keep borrowing, we also have recurring cases of Ministries that are not able to spend half of their annual capital budgets. It is therefore puzzling how a Ministry that is unable to execute in a timely manner projects provided for in its annual budget could be trusted to execute funded projects obtained through foreign loans. Would it even be reasonable for us to keep borrowing when we have excess both in our reserves and the so-called Excess Crude Account (ECA)? Or can we now trust our leadership with new loans when it was corruption by these same leaders who stole huge funds and banked them abroad including loans acquired on behalf of the country that led us into the post 2005 debt crisis?

Let us also remind the DMO that debt servicing brings excruciating pain and hardship to the citizens, who in the end are short-changed, as monies, which should have been appropriated for other services are now diverted into debt servicing. We are in fact told that what was actually borrowed in Nigeria’s earlier debt of $36 billion, which was eventually cancelled after negotiations in 2005 was about $10 billion, but due to interest charges and penalty for not paying on schedule, and in spite of the $35 billion the country had paid over 20 years, the debt still accumulated to the $36 billion, which was eventually negotiated for cancellation.

Somebody must equally remind the DMO that its argument for some of these loans of “providing low cost of funding for the federal government, subject to the control of risks within acceptable limits and developing the market for long-term debt instruments, thereby creating a benchmark yield curve for other financial instruments in Nigeria” does not hold water. Neither does its insistence that over 85% of the foreign loans have been obtained on concessionary terms, with between 30 and 40 years repayment periods bring anything to cheer. As it keeps ballooning the country’s domestic debt, the DOM must also be reminded of the dangers of ignoring earlier warnings by the former CBN Governor, Charles Soludo, the former Finance Minister, Ngozi Okonjo-Iweala and the World Bank that this will eventually cripple the economy and ‘crowd out’ the private sector.

Our past experience with debt was not a good one and no one would want a repeat. In fact, we are surprised that people like the former President, Olusegun Obasanjo, who personally championed and secured Nigeria’s debt forgiveness in 2005 and who is widely known to be very close to the present administration has not come out to challenge them on their fertile appetite for new loans. Or, is he convinced by their posturing? We decry a situation in future, where the country would again be left to the dictates of the International Monetary Fund (IMF), the Paris Club of Creditors or any of the other lending institutions.

Hence, we insist that government should desist from further borrowing and if it must, then the people in whose interest it does so must be properly consulted, while adequate guarantees must be secured that the money would be used productively. Government cannot be frivolously seeking loans, when in fact the country’s woes arose from unsustainable use of available resources.

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