The many dangers of senseless debts

It is no longer news that the country’s economy is in recession. Many Nigerians are cash-strapped. This is as a result of salaries and wages not being paid as and when due, low patronage being experienced by those in business due to high cost of goods and services, non-payment of debts owed local contractors (this was estimated at about N7tn) and unemployment. This dire situation has made many to resort to borrowing to survive. However, many of us who are in the habit of incurring debts needs to watch it. The catch is not in borrowing but in repaying the loan. Yes, sometimes it is inevitable to borrow but in doing so we must think things through.

I borrowed a lot when I was on my housing project. Wisely, I avoided borrowing from the bank, cooperative societies, the Shylock money-lenders, or any of such. I borrowed at no interest rate from colleagues, friends and family members. Thankfully, after a long while, I have repaid all the loans.  I have at different times borrowed to do other projects and have luckily found ways and means of paying back. The moral of my personal story is to know where, when, and for what purpose one should borrow. A lot of my compatriots still incur debts to host one-in-town weddings, buy wonder-on-wheel cars, and throw lavish funeral and chieftaincy title parties or naming ceremonies. All these ego-massaging debts and vanities lead to heartache and spiral rise in blood pressure. 

As it is for individuals, so it is for government. Every government must think through and thoroughly analysed its desire to obtain loan or incur debt. The questions to ask include but not limited to: Are there alternatives to taking this loan? If we must take the loan, at what interest rate should it be? What is the repayment plan? From where should the loan be sourced – bilateral or multilateral organisations? What should be the moratorium?

Information from the Debt Management Office better known as DMO shows that States and Federal Governments' External Debt Stock as at June 30, 2016 was $11,261,887,684.00 with the Federal Government share of the debt portfolio standing at $7,607,500,252.76 while those of the state was $3,654,387,431.24. The three most indebted states are: Lagos with $1,431,474,719.70; Kaduna with $225,277,020.12 and Edo with $179,519,864.02. This is just foreign debt profile. Many of the states are reeling under heavy domestic debts. The question is, what did they use the obtained loan for? Payment of salaries? Overheads? White elephant capital projects or productive ventures?

Odilim Enwegbara, a renowned development economist and I were guests on “Issues of the Moment” a programme on Radio Nigeria last Thursday, November 10, 2016. The topic of discussion was “Foreign Debt and Nigeria’s Economy”. This was against the backdrop of the current attempt by President Muhammadu Buhari to get the Senate approval for $29.9bn external loan between 2016 and 2019. The argument has been canvassed that Nigeria’s debt to Gross Domestic Product ratio is small and that Nigeria is credit worthy and should go for foreign loan to fix critical infrastructure. While my co-panelist argued in support of the proposed loan, I was vehemently against it. 

My ground of argument against further loan includes the following: Previous loans have not been demonstrably used judiciously. Rather much of it was diverted to private pockets with little or nothing to show for the projects for which the loans were obtained in the first place. I was shocked to learn that Nigeria actually took loan to host FESTAC ’77 which was a jamboree. Two, government should account for additional revenue received from the increase in the pump price of petroleum products from N87 to N145 per litre, N50 stamp duty collection by banks on every banking transactions, looted funds recovered and Treasury Single Account savings. Three, government stands to rake in huge revenue from sales of white elephants embarked on that have become a drainpipe on our resources. Over 11,886 uncompleted federal government projects were discovered by Alhaji Bunu Sheriff presidential assessment committee in 2012. I have earlier canvassed for the audit of these projects to be done. While those that are liabilities should be auctioned off, those that will add value to our economy should be funded to completion from the proceeds of sales of the white elephants.

Four, with the current attempts by the federal government to reduce the cost of governance, bring more people into tax net, and block revenue leakages in the bureaucratic system, there should be more money at government disposal to be used for infrastructural development. Public-Private-Partnership infrastructural finance model is also a viable option and better than taking more foreign loan. Under the PPP, government could sign a Memorandum of Understanding or partnership agreement with private sector to Build, Operate and Transfer. This will enable the investors to recoup their investments with profit. Concessioning agreement  as is being mooted over some of the country’s airport will also ensure injection of private sector funds and better management of some of the hitherto government enterprises.   

It cannot be overemphasised that improving ease of doing business will attract foreign direct investment. Foreign and local investors can therefore be incentivized to take on the provisioning of the critical infrastructure like electricity, roads, water, refineries, schools, hospitals and many more. Proper commercialisation and privatisation will reduce government funding and make the need for foreign or domestic loan less attractive.  As earlier said, I am not convinced that Nigeria needs foreign loan at this point in time let alone the quantum of $30bn. Nigeria in March 2016 exited the Paris Club of debtor countries after paying $12.4bn in order to get a debt forgiveness or relief of $18bn. As the story goes, Nigeria originally borrowed about $10bn and still owes $30bn even after $17bn had been repaid! Such is the abracadabra of the multiplier effect of this booby trap called external loan. So much resource will be needed to service the debt (that alone will deplete our external reserve). Failure to service the debt will lead to the imposition of compound interest which may end up making our dear country to pay much more than the initially negotiated interest on loan.

That’s part of the reason I don’t support this foreign loan. Taking loans to fund social intervention schemes like school feeding programme or sponsorship of pilgrimage or building new government house or governor’s lodge will be counterproductive.  If we must borrow at all, I totally endorse the 10 point practical guide suggested by my colleague, Eze Onyekpere in his column in this paper on Monday, November 14, 2016 entitled “The $30bn presidential borrowing request (2)”. I do hope we think about the future generations of Nigerians before we accumulate gargantuan debt profile.

Follow me on twitter @jideojong