NIGERIA'S DEBT: THE HOUSE VS OKONJO-IWEALA
BY LES LEBA
In a recent online interactive program 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%, which, compares favourably with 40 to 60% benchmark for emerging economies and more favourably with the United Kingdom and United States' debt to GDP ratios of 89 and 90% respectively.
The Federal Legislature is, however, not excited about the Minister’s celebrated economic growth indices and the insignificant decline in deficits and borrowings, and indeed, believes that Nigeria's domestic cost of borrowing remains one of the highest in the world. Consequently, House members have demanded that the true cost and the procedure for accumulating and servicing of our debts should be more clearly defined, as part of the answers to the 50 questions set for the Coordinating Minister of the Economy.
The House is also concerned that regardless of the reduction of deficits between 2011 and 2014, and the recognition of the oppressive burden of prevailing high cost of borrowing, unexpectedly, additional loans still propelled our total indebtedness from N5.6tn in 2011 to N7.1tn by 2013.
Dr. Okonjo-Iweala however, explained that the increased borrowing was instigated by a rise in recurrent expenditure due to the unplanned wage increases between 2010 and 2011. Thus, it may be necessary for former Finance Minister, Segun Aganga, to explain how and why these wage increases were granted without adequate provision in the 2010 budget for the additional spending.
Evidently, the savings from the privatization of corruption-ridden public enterprises and the exclusion of a sizable population of ghost workers from the treasury’s payroll and the expected savings from the established due process for public procurements, did not compensate for the alleged wage increases.
Government’s faux pas in borrowing with such oppressive cost to fund increased spending due to alleged revenue shortfall may provide the answer for the growth in the ratio of debt service charges to total budgeted revenue from 14 to almost 20%! 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 $40bn idle reserves and over $8bn 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 mirror the allegedly perilous debt overhang of a decade ago. Indeed, if existing external debt of about $10bn and AMCON's N5tn ($30bn) debt is also factored in, our current debt stock may actually exceed $90bn or indeed, rise above 40% of GDP, even after we exclude the N400bn (about $2.5bn) recently borrowed to pay PHCN workers after the privatisation of that company.
Thus, contrary to the Finance Minister's assurance to our youths, we may leave a legacy of an expensive debt burden for future generations to pay, if the currently designated N100bn annual sinking fund is our only provision for debt liquidation! 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 House Committee is also 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%, while capital expenditure, despite its social multiplier impact, has regrettably fallen to 24% in the 2014 budget.
The Honourable Minister’s plan 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 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 domestic cost of funds would be the adoption of a monetary strategy that would bring down local cost of funds to the same level as the more desirable external loans, without the omnipresent fear of capital flight.
However, the following are excerpts from Dr. Okonjo-Iweala's somewhat staccato response to a question on the unusually high interest rates in Nigeria, in a recent interview: “… 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 5% and 3%.
“…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 yet any wiser; however, it is evident that the prevailing high interest rates in Nigeria are the result of perennial level of excess liquidity in our economy. It is not yet 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 liquidity, with the adverse consequences of higher cost of funds, a weak naira exchange rate, increasing subsidy values, burdensome debt accumulation and horrendous charges to service these debts.
SAVE THE NAIRA, SAVE NIGERIANS!!