ANOTHER USELESS DEBT BURDEN! 27112006

Nigeria prosecuted the civil war without incurring one kobo of external debt.  Indeed, when General Obasanjo handed over to the civilian government of the Second Republic in 1979, the federal treasury was endowed with a buoyant reserve base.  The sharks and kleptomaniacs in Shagari’s government wasted no time in feeding fat and looting the balance of what they could not consume, that, by the time the army came calling again in 1983, Nigeria had become a serious debtor nation with international skepticism on our ability to meet our obligations with such sustained profligacy.  The seeds of a debt burden sowed by the civilian administration of the National Party of Nigeria – NPN-blossomed unattended to dizzy heights even as creditor countries in Europe continued to massage our egos with such encouragement that the Nigeria nation was under-borrowed and therefore needed more loans to finance our development and meet existing obligations!

Their suggestions became attractive bait for military governments seeking the favour of western nations, and it was not surprising that we not only accepted more loans, but we carried on as if there was no obligation to settle even the outstanding commitments, in spite of the atrocious and oppressive interest rates and penalties which galloped at a geometric pace in the event of default.  It is not surprising that at the end of 2005, the loan burden had ballooned to over $35bn in spite of the reality that the initial capital sum of less than $14bn had been paid together with additional interests and penalties of over $17bn over the years!

The fact that the national treasury does not belong to anyone family made it easy for Nigerians to countenance the fact that no single tangible sustainable project can be traced to the funds borrowed and which eventually became an albatross on our economy and the welfare of our people.

Indeed, in the same manner, a small handful of people with conscience campaigned in European parliaments, particularly in England for the abolition of slave trade, a modern day pressure group under the aegis of the Jubilee Debt Campaign (JDC) launched a massive worldwide campaign for the cancellation of the debts owed by the worlds poorest countries.  Indeed, it is to the credit of the JDC that most African countries had 100% of the debts owed totally cancelled.  In the case of Nigeria, we only got 60% cancellation in spite of the international media posturings odysseys of our Finance Minister’s and her team across Europe.

Our Senators alone spent a princely $10m or N1.30bn for travel expenses and estacodes all in an attempt to duplicate the incisive and effective pressures of the JDC on the UK and other European creditors.  Incidentally, the JDC under the able and sincere leadership of Tricia Rogers has begun an independent campaign to pressurize UK creditors to return their share of the $12bn Nigeria paid the Paris Club of creditors as the JDC considers it immoral to take away the money which we need to improve the welfare of our poor people.  We are not aware that the Nigerian authorities have anything to do with this initiative, but President Obasanjo’s recent statement at a conference in Kenya that debt relief to poor countries should not fall short of 100% may be a covert declaration that Nigeria may have been shortchanged in this matter of debt relief, otherwise, why would the same Nigeria celebrate a 60% debt relief, while our President is demanding 100% for other countries which have a better rating than us in the poverty index of the world’s poorest?

In spite of the controversial nature of the Paris Club debt relief, Nigerians, nonetheless, may breathe a sigh of relief that one way or the other, the oppressive debt (overhang) is over or is it?  The current trend in the domestic debt burden is certainly worrisome.  The domestic debt, of course, is the summation of loans taken by the government of Nigeria from Nigerian banks and other private or indeed public investors.  The local debt level has jumped by almost 100% in the last three years.  

Mr. President indicated in his budget speech to the National Assembly last month that the domestic debt burden will approach N2 trillion in 2007!  However, the Guardian Newspaper editorial of 2/10/2006 suggests that “the true level of the internal debt stock may well be in the region of N4 trillion; at the current rate of exchange, this would translate to over $30bn, déjà vu!  You might say!  Even if we adopted an average of the budget figure of $2 trillion and the Guardian’s projection of 4 trillion, we would still be owing local investors, mainly money market investors, rather than contractors over $23bn in 2007!

This huge local debt has been accumulated within 3-4 years, but once again, but what have we got to show for it in terms of local infrastructure?  Our power generation capacity continues to record a shortfall of about 7000MW in spite of huge spending amounting to over N1 trillion as per the calculations of an eminent member of the Senate; our public schools remain trading places for teachers and playground for students; our hospitals continue to remain as consulting clinics and our mass transit system still remains non-existent, while potable water remains a mirage for over 70% of Nigerians!  So, what has most of these borrowed monies been used for?  The truth, according to Mr. President and the CBN Governor, is that most of the debts incurred were never meant for any infrastructural upgrading in the first place; the funds were borrowed so as to take away supposedly excess cash from the hands of the bank so that their ability to extend credit to their customers will be constrained!  

The CBN and the Debt Management office sell treasury bills and bonds in the money market so as to mop up excess liquidity and deepen the bond market, (whatever that means!)  Indeed, according to the CBN Governor, the money so borrowed by government is simply sterilized or closeted so that the high level of cash in the money market would not be available for consumption spending.  The CBN Governor recently indicated that interest payments for servicing these loans which are obtained at rates of 12-13% and 17% respectively reached N75bn in the first quarter of 2006, while the President in his budget speech reported that interest payments for servicing these loans would approach N250bn in 2007.  Please note that this huge amount which would be earned as interest by mainly the brotherhood of banks is enough profit to create another 10 newly capitalized banks with the minimum of N25bn capital base.  

It sounds as very odd economics to spend an additional sum of N250bn in order to reduce the amount of cash in the money market in any one year!  But never mind, the banks have never heard a more intoxicating song as they embark on multiple edifices to hold their branches and pay salaries that are the envy of other sectors, while local industries continue to search for the tunnel that will lead them to Eldorado before they are forced to close shop and throw up more employees into the labour market!  If the CBN is simple-minded enough to give $7bn of our reserves at 3-4% interest to Nigerian banks which are then allowed to recycle the funds into naira and purchase treasury bills and bonds with returns of between 12 and 17% respectively, then, Nigerians can be certain of holding steadfastly to their lowly marks on the world poverty ratings for many years to come.