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Anger Over Loan Burden  print

Published on December 3, 2012 by   ·   No Comments

The National Assembly raises the red flag over excessive borrowing by states and the federal government

With an accumulated debt profile of about $5.7 billion and still rising, Nigeria seems to be heading back to the debt trap. Worried are members of the National Assembly who ventilated their fears twice last month.

Penultimate Wednesday, members of the House of Representatives committee on debts, aids and loans questioned Bauchi State Governor, Isa Yuguda and representatives from other states over their foreign loan bids. Yuguda is currently seeking a total of $171m foreign loan for the state out of the total package of $9.3bn which the federal government has proposed in the 2012-2014 Borrowing Plan. His Kaduna State counterpart is seeking $234mn loan to fund projects which include the Bi-Lingual Education Programme and the Urban Water Sector Reform Project. This is in addition to the state’s current debt stock of $182m.

Also featuring prominently in the league of foreign loan-seeking states are Lagos, Edo, Kaduna, Ondo, Yobe, Ogun, Cross River, Adamawa, Kwara, Niger, Enugu and Oyo. Credits sought by the state governments are part of the total loans captured in the 2012-2014 External Borrowing Plan of the federal government. And like the governors, President Goodluck Jonathan has lately been bombarding the National Assembly with requests for approvals to secure loan facilities from different parts of the world. Recent requests include approval of the Senate for Nigeria to take a $1.6bn loan to finance a water supply project in Rivers State and for the execution of housing projects across the country. The loan, he said, will be financed by the African Development Bank, ADB.

The request is seeking the inclusion of $200mn to finance a water supply project for Rivers State and another $300mn for a low-income housing scheme, which will be financed by the World Bank to provide affordable housing for Nigerians. “We would like to bring to your attention the fact that we need to issue a $1bn Euro Bond in continuance of the programme initiated under the administration of the late President Umaru Musa Yar’Adua, as well as a $100 million Diaspora Bond,” the President said in the letter to the Senate.

The President had earlier sought the legislature’s approval for a $9.3bn loan under the 2012-2014 External Borrowing Plan. But the request, according to him, is not expected to increase external borrowing during the period, as part of the new loan amount “will be swapped with the proposed guarantees for the power sector in the draft borrowing plan”. Senate President David Mark, briefing senators on the President’s request stated that the initiative would necessitate an amendment to the 2012-2014 Medium-term External Borrowing Plan.

In the Executive bill sent to the National Assembly which demanded approval of an aggregate sum of $9.3bn as foreign loans from five different sources into government’s planned Medium Term External Borrowing Plan, Jonathan stated that the loan was designed as an initiative towards total transformation of the entire economy. The facility, he said, would be sourced from the World Bank, African Development Bank, Islamic Development Bank, French Development Agency and Exim Bank of China. He said: “The objectives of the projects cut across the various sectors of the economy and the projects to be funded and the amounts of loan and terms and conditions were set in an Annexure made available to lawmakers.”

Debate on the bill polarised the Senate. Though it passed for second reading, the lawmakers did not fail to caution the Executive of the impending debt trap. According to Senator Ganiyu Olarenwaju Solomon: “In doing justice to this bill, the committee must critically look at the various items under the proposal. By late 1970s, we started borrowing huge foreign and local debts, which made the country to part with $12bn recently to get out of the mess. If we are guaranteeing these loans that are being sourced, the Debt Management Office, DMO, should be up and doing to be able to keep track of these loans which are used for the areas that they are meant for so we do not burden in-coming generations.”

Senator Benedict Anyade (PDP, Cross River) said there was no basis for seeking fresh external loans when most of the projects for which huge funds were borrowed in the past were abandoned. He said resorting to foreign loans is a celebration of the inefficiency and lack of moral credibility. Senator Ita Solomon Enang (PDP, Akwa Ibom North-East) said most of the items for which loans were being sought were unreasonable because they had already been provided for in the 2013 budget. Similarly, Senator Ahmed Lawan (ANPP, Yobe North) wondered why Jonathan was insisting on fresh external loans when the ones previously obtained had not been equitably distributed. Lawan also flayed the administration for failing to adhere to the previous external borrowing plan. In the same vein, the Chairman of the Senate Committee on States and Local Government Administration, Senator Kabiru Gaya (ANPP, Kano South) said he could not understand why the federal government was seeking an external loan of N244bn for the eradication of illiteracy in just three states.

According to the borrowing plan submitted to the Senate, the Daily Trust quoted, the President is planning to borrow $2.98bn from the World Bank for such projects as growth and employment project ($140mn), state health programme investment credit ($50mn), electricity and gas improvement ($150mn), erosion watershed management ($450mn), polio eradication ($95mn), state education programme investment ($150mn), and food and waste management ($200mn), among others. He is also planning to borrow $3bn from the Exim Bank of China for the Abuja light rail project ($500mn), Zungeru hydroelectric power project ($765.7mn), infrastructure projects ($1.6bn) and national information and communication technology infrastructural backbone project ($100mn). Expected from the Islamic Development Bank is a loan of $672.8mn for projects like bilingual education programme ($70mn), Zungeru hydroelectric power project ($234mn), Gashua water supply ($40mn), upgrading of hospital facilities in Kaduna State ($44.69mn) and the science secondary schools in Kaduna ($17.32mn). From the ADB, Jonathan wants to borrow $731.2mn for Zaria regional water supply ($81.2mn), development of FCT satellite towns ($300mn) and water resources and sanitation projects ($200mn), among other projects. He also wants to borrow $56.61mn from the French Development Agency for one single project on national urban water sector reforms.

A few weeks after the Presidency requested the Senate to approve the borrowing of $7.9bn, it last Tuesday sent an amendment to allow for additional borrowing of $200mn in the 2012-2014 Medium-Term External Borrowing Plan to the lawmakers for approval. In a letter to the Senate, which was read on the floor by David Mark, President Jonathan explained that the additional $500mn would be expended on water projects for Rivers State. “First, we would like to include a $200mn water supply project being planned for Rivers State. This project would be financed by the ADB and shall provide potable water supply to residents of Rivers State. Secondly, the federal government is currently developing a low-income housing finance facility to support the provision of affordable homes for Nigerians. This scheme will be financed using a $300mn credit facility from the World Bank,” the President said.

The Presidency however stated in the letter that, “we would like to swap this new $300mn facility with the proposed guarantees for the power sector in the draft borrowing plan, thereby ensuring that we do not increase the overall size of loans proposed in the external borrowing plan.

“Thirdly, we would like to bring to your attention the fact that we need to issue a $1bn Euro Bond in continuance of the programme initiated under the administration of President Umaru Musa Yar’Adua, as well as a $100mn Diaspora Bond.”

Earlier in the year, it was reported that the World Bank extended a loan of $500mn for support to Nigeria during the global financial crisis. According to the Independent Evaluation Group report of the World Bank, “Nigeria faced serious fiscal issues at the onset of the crisis and funds were given to Nigeria in the form of budgetary support to the government for undertaking in policy reforms, both in the areas of fiscal management and financial sector reform.

The Director of Flood and Erosion Control in the Federal Ministry of Environment, Mr. Adekunle Oshikoya, who spoke in an interview with the News Agency of Nigeria, explained that the ministry would use $500mn World Bank loan to tackle erosion in some states across the country using the water shed approach. “We are trying to solve the degradation problem from the water shed view, which is holistic. We are not going to probably look at individual erosion sites alone. That’s why the approach may be like a once-and-for-all thing to solve erosion problem in the area,” said Oshikoya.

In February, the Minister of State for Finance, Yerima Lawan Ngama said Nigeria was in talks to secure a $600mn no-interest loan for infrastructure work from the Islamic Development Bank. Ngama, who stated that the loan would be repaid in three to four years and the country’s application for the facility has passed the IDB scrutiny and received positive approval from the Board, added that the new loan application will exclude the $370mn private sector loan already extended to Nigeria by the IDB for other developmental projects. According to the minister, the $600mn loan was intended for “investment in social infrastructure and power like the provision of turbines for the Zungeru power station as well as the construction of health centres; urban and rural water works; housing and rehabilitation of some state universities”. Nigeria became a member of the Islamic Development Bank in 2005. The country currently holds a $30bn authorised share capital and an equity stake of $2.28bn, representing 7.6 per cent in the Bank.

At its Federal Executive Council meeting last month, the federal government approved a loan of $77mn (about N12bn) for water projects in Lagos and Cross River states. Information Minister, Labaran Maku later told reporters that the concessionary loan from a France agency will fund ongoing urban water projects in the two states, which comprises $43.9mn (N6.8bn) to Cross River and $33.8mn (about N5.2bn) to Lagos State.

Nigeria’s debt profile stood at $5.7bn by December 2011, according to the Debt Management Office. A fresh $8bn, to be spread across four years, is being negotiated from Chinese banks, bringing the figure to $14bn. While the lawmakers have criticised the growing profile which the government says will fund developmental projects like construction of railways, Maku assured last Monday that the debt status presented no threat to the economy.

In an editorial, The Guardian opined that “The signing by the Federal Government of $1.1bn loan from China appears laden with doubts and speculation amidst the wavering viability of the projects for which the money is intended. Besides, there are issues on the correct pricing of the loan, against current international financial transactions; and the loan’s adequacy to fully address the projects. Clearly, the resolution of these doubts is the first step to avoiding the chronic debt trap to which the country is highly susceptible. The last thing Nigerians want is to again be saddled with debts with nothing to show for.”

The federal government has signed up for $1.1bn borrowing from the Chinese Export Import Bank and the nominated projects are the Abuja Light Rail, four airport terminals and infrastructure for the government-owned IT network. The terms of the loan indicate 2.5 per cent interest over 20 years with seven years moratorium. These are reportedly concessionary terms for Nigeria, while China would deploy the labour to implement the projects with 2015 completion dates.

“In the choice of projects for external financing, the Galaxy Backbone project reeks of laziness and the reluctance to fund this service for the past 10 years from domestic equity funding. Whereas it is unclear if $100mn from China is equipment financing from Chinese Vendors, the principle of borrowing for the project flies in the face of assurances from the Debt Management Office of conscious, deliberate judgment on priority borrowing,” the publication stated.

According to the national co-ordinator, Centre for Societal Values and Development, Silas Udoh, obtaining such foreign loans at a time government is trying to develop infrastructure is not the best for a growing economy like Nigeria. Udoh advised Jonathan to reduce the overhead in government and restructure governance to generate more revenue instead of seeking foreign loans for the construction of pipelines, which will attract so much money to service regularly.

—DESMOND UTOMWEN, Abuja/TheNEWS magazine

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Posted by on December 3, 2012, 10:16 am. Filed under Business, Business News. You can follow any responses to this entry through the RSS 2.0. Both comments and pings are currently closed.

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