Henry Boyo, a renowned Nigerian economist, has said the $29.9 billion external loan being sought by President Muhammadu Buhari will ultimately spiral into a $90 billion debt, which may gulp 50 per cent of Nigeria’s annual income in debt servicing.
Boyo makes his claims in his article, titled “A Mugu Smiles Back Into Debt Trap”.
The article is reproduced below:
A ‘mugu’ smiles back into debt trap!
By Henry Boyo
In an article entitled, “Compassionate debt relief or Paris Club 419?” (see Vanguard, December 9, 2005), this writer observed as follows: “Despite the effusive enthusiasm of this administration, some Nigerians still refuse to celebrate the recent ‘debt relief’ in which Nigeria will see $18bn of its over $30bn total debt cancelled, on the condition that it pays the remaining $12.4bn between now and March 2006 while the Central Bank regularly also liberally auctions dollar sales to banks and the Bureau de Change.
“Furthermore, some analysts have questioned the equity in a transaction in which a ‘beggar nation’ borrows less than $10bn and yet still owes his affluent creditor over $30bn, even after more than $17bn had been repaid!”
In another article entitled, “2008 Budget, more questions than answers” (April 21, 2008), a notable flaw that will lead to unmitigated failure in the implementation of the proposed budget was identified as “the National Assembly’s total oblivion of the poisonous impact of sharing substituted naira allocations for our distributable export dollar revenue every month. Undeniably, however, industrially hostile interest rates of around 20 per cent, irrepressible domestic fuel price, despite rising external dollar reserves, are all, in fact, symptoms of the monthly monetisation of billions of dollars from crude oil export. This strangulating framework unfortunately fires inflation and also compels government’s payment of over N372bn interest charges annually!
Nonetheless, it will be inexplicable for anyone to endorse 20 per cent interest payment on erstwhile acclaimed soft loans; for example, on page 112 in a Guardian newspaper report of May 22, 2005, the Director General, Debt Management Office, Abraham Nwankwo, confirmed that “…84 per cent of the nation’s $3.7bn external debt is accounted for by loans from concessionary sources with very low interest rates around 0.5 per cent, so that such low cost funds can be deployed without much risk, to social infrastructural programmes such as education, health and agriculture, which have extended gestations.
Curiously, however, the 2008 budget has earmarked about $600m as interest provision (i.e. about 20 per cent of principal) for the existing external loan of $3.7bn! This is clearly outrageous and certainly out of sync with the traditional low cost of servicing such risk-free sovereign loans. It is also inexplicable that the CBN would similarly seek domestic loans at such high rates from the same 14 banks in which it recently unilaterally, and liberally, placed $14bn of Nigeria’s reserves without any cost or apparent safeguards. Nonetheless, the National Assembly in its self-serving wisdom ignored this faux pas as they grumbled and rumbled to force the disbursement of a bloated budget which was assented to, on the threat of impeachment, by President Umaru Yar’Adua.”
Yet another article entitled, “Increasing national debt: NASS beware” (January 26, 2009), made a cautionary statement on our bloated domestic debt, especially when there is little on ground to show for most of the debt. Regrettably, the imminent $500 million bond issue also remains untied to any verifiable project that would improve social welfare. Consequently, the National Assembly was urged to stand on the side of the people by rejecting Mr. President’s 2009 budget request “to exceed the sustainable fiscal deficit of three per cent of GDP that is consistent with international best practice, without recourse for further approval by the National Assembly!”
A follow-up article entitled, “External debt: At what cost?” (February 2, 2009), also warned that “we should not be surprised if external debt more than doubles when next Mr. President presents the 2010 budget, as the recent $500m bond may be supplemented by the IMF’s dangling offer of a $3bn loan, paradoxically, at a time when the CBN is busy selling over $3bn monthly from steadily depleting dollar reserves to the Bureau de Change, without minding the economic dislocations facilitated by smuggling, round-tripping and capital flight.”
In another piece entitled, “Budget 2010: ‘Mugu’ smiles back into debt trap!’(April 26, 2010), this writer observed as follows: “While the controversial debt exit in 2006 took well over a decade to accumulate, it seems that we have become much more experienced in such ventures, as it required just over three years thereafter, to consolidate a fresh debt burden that already exceeds the $30bn mark that was decried as precarious in 2006.”
Indeed, in a report titled, “Debt servicing to gulp N517bn in 2010” (The PUNCH December 1, 2009), the Debt Management Office (see, “Nigeria’s debt creation office” at www.lesleba.com), confirmed total domestic debt at about N2.5tn by October 2009. Incidentally, the 2009 budget set aside N283bn (eight per cent) for domestic debt service, but this charge has almost doubled to N517bn in the 2010 Appropriation Bill before the National Association. Although the 2009 service charge of N283bn did not distinguish between external and domestic components, Nwankwo, the DG of DMO, confirmed that N38.92bn would be required to service the $3.7bn external debt, while N478.15bn would cover service charges for domestic debt. The much higher provision for domestic debt service must have become necessary because of the N1,500bn projected deficit in the 2010 Appropriation Bill. Consequently, total domestic debt in 2010 is projected to rise to N4000bn, (N2,500bn+N1,500bn) i.e. over $27bn at N150=$1.”
“Thus, the consolidated domestic and external debts would exceed $30bn ($27bn + $3.7bn) by 2011! No, you are not wrong for gasping in amazement! Yes, we have been here before the 2006 debt exit, and sadly, there is still nothing on the ground to show that the loans taken were wisely spent!”
In another article published on March 19, 2012 and entitled, “National Assembly fiddles as debt burden cripples”, this writer also observed as follows: “By mid February 2012, President Goodluck Jonathan requested the National Assembly’s approval for a foreign loan of $7.9bn for the completion of various pipeline projects. Again, the consensus of public opinion is that Nigeria should not accept this loan, as the agony of the controversial $12bn-plus penalty, paid to exit $30bn external debt in 2006, is still palpable, particularly because, the promise that savings from the debt exit would be used for improving social infrastructure and reduction of fiscal deficits has remained unfulfilled.
Invariably, by the first Quarter of 2012, domestic debts had exploded from less than N1tn in 2006 to N5.62tn. Despite the sharp rise, there is no structural evidence or apparent enhanced social welfare to compensate the bloated debt burden. The external debt burden, on the other hand, still hovers around $3.5bn. However, President Jonathan’s present request for a $7.9bn external loan will invariably spike foreign debt to $11.4bn, even though the destined application of this loan is allegedly inappropriate, as it is not in consonance with government’s Transformation Agenda of leaving business in the hands of the private sector. Nevertheless, the favourable disposition of the Minister of Finance, Dr. Ngozi Okonjo-Iweala, who incidentally also brought about the celebrated Paris Club debt exit six years earlier, may presumably be best explained by the alleged very low cost of this new loan, when compared with 15 per cent plus interest rates that much of government’s domestic borrowings still attract. Sadly, so far, the government has remained reluctant to interrogate the reason for such high domestic lending rates.”
Nonetheless, four years down the line, in October 2016, President Muhammadu Buhari has submitted a fresh request for legislative approval to disburse an external loan package of $29.9bn between 2016 and 2019. These additional borrowings will inevitably spiral the total debt well beyond $90bn and ultimately compel the allocation of upwards of 50 per cent of Nigeria’s annual income to debt service charges, particularly if subsequent years’ budgets also require additional loans to fund the tradition of serial deficits! (See also “To concession is more responsible than to borrow $29.9bn” in the PUNCH and Vanguard editions of November 7, 2016). All articles referenced above can be seen at www.lesleba.com.