Is FG’s appetite for borrowing healthy for Nigeria? – The Punch

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  • Mr Joe Femi-Dagunro (Ex-President, Nigerian-German Business Group)

The issue is about transparency. The government can take loans from foreign countries and donors’ but the major thing is for government to be transparent on what it took the loan for.

If you take a loan based on infrastructural gap, the people should be able to see and feel the impact of the loan and also see the gradual and consistent close in the infrastructural gap.

I see no reason why a government should keep borrowing and the people are not feeling the impact of what the loans are used for.

If our country’s debt servicing and revenue ratio, which is about 60 per cent and our growth rate, is about two per cent, there is a good reason for concern.

I want the government to focus on some key areas of infrastructural development such as electricity, health, agriculture, road construction and maintenance.

These key areas are known to all Nigerians as critical to our development and until the Federal Government embarks on these areas and completes all ongoing projects, the masses will continue to doubt the government and its policies.

The government must come out with the details of the loans and what they have been used for. The country’s manufacturing sector is in pains and some are dying gradually. Unemployment is rising and most young people are becoming hopeless.

Education may soon become unaffordable to ordinary citizens if care is not taken.  We know that all these issues cannot be tackled in a year or two, but by now Nigerians should begin to feel the impact of efforts put into these areas.

  • Mr Godwin Eohoi (Registrar, Institute of Finance and Control of Nigeria)

Borrowing in itself is not a bad economic strategy, but the way in which money borrowed is used is very important.

I am not worried about borrowing because debt is leverage, but it depends on what the loan is used for. It must be used for productive purposes and not to finance recurrent expenditure.

Oil prices are bouncing back and so I see the borrowing as a last resort to prevent the total collapse of the economy since we had a serious revenue shortfall.

When you have a decline in revenue, you have to resort to borrowing. There is nothing bad in borrowing, but we should borrow heavily for the purposes of building critical infrastructure and with the level of revenue challenges we are having in the country, it will not be easy servicing some of these debts.

  • Mr Ola Azeez (Entrepreneur/public affairs analyst)

There are things we need to look at when talking about borrowing. The number one thing is to know if we are going to make use of the funds for the purpose which they were borrowed. Although there is nothing wrong in borrowing, it must be used well so that we will not enter into a debt trap at the end.

It is a common saying that he who goes borrowing goes sorrowing, that is if there is no good plan for such debt. But there is nothing wrong in borrowing if you know what you want to use it for is productive. Proper planning prevents poor performance and that is why the government needs to plan very well before borrowing any money. You should not start planning after borrowing; it will be disastrous.

Whether we are borrowing from the International Monetary Fund, Paris Club or even borrowing within the country, we must have proper planning for it. We must know the economic benefit that we envisage from any loan. We must borrow in such a way that will engender exponential benefits for the economy. Where such is not in place, the debt will become a burden.

There must also be discipline in managing the fund after borrowing. We should not borrow to satisfy the appetite of some persons. There must be a genuine economic reason for borrowing and any money borrowed must be channeled to what we promised to use it for. If there is no discipline, debt will become a serious burden and it will have a negative effect on our economy and every aspect of our life.

Look at how much we are using to service our debt now; so we must be wise and discipline ourselves. Further debt without proper planning and discipline will amount to enslaving ourselves to our creditors.

  • Prof. Uche Uwaleke (Chairman, Chartered Institute of Bankers of Nigeria, Abuja chapter)

The Federal Government’s strategy of increasingly resorting to external borrowing to fund budget deficit finds explanation in the increasing cost of servicing domestic debt.

This disposition accounts for the growing quantum of foreign debts contracted on commercial terms in recent times with much emphasis on tapping the Eurobond markets.

Nevertheless, the preponderance of fragilities in the Nigerian economy warrant a cautious approach to new external borrowing – one that is shy of non-concessional loans contracted purely on commercial terms such as Eurobonds. Indeed, the country can only hope that there are no more currency shocks in the near future.

Indeed, high external debt itself can be an obstacle to growth as argued in the debt overhang literature. External borrowing can be detrimental if it fails to generate a commensurate increase in a country’s capacity to repay as the Nigeria’s case seems to demonstrate.

The country’s ratio of external debt service to revenue may be relatively low, but the pre-2005 experience —when the country’s external debts reached unsustainable levels which hampered efforts to achieve inclusive growth for many years —serves as a sober reminder of what can go wrong. This underscores the importance of prioritising concessional external loans over commercial debts consistent with the standard framework for debt sustainability.

In order to optimally diversify the country’s debt portfolio, especially against the backdrop of increasing difficulty faced by Nigeria in securing concessional loans from multilateral sources, other external funding sources should be explored with the overarching objective of securing the best deals that cut borrowing costs.

Alternative funding sources should be explored, including privatisation through the Nigerian Stock Exchange, to engender inclusive growth as well as through Public-Private Partnership arrangements. State governments should be made to implement the 22-Point Fiscal Sustainability Plan aimed in part at managing debt sustainably at the sub-national level.

Indeed, there is justification for the growing concerns over the country’s increasing public debt. Let’s link borrowing plans more to debt service ceilings than other debt indicators, while sticking to the golden rule of debt management that requires governments to borrow only to fund investments that produce high returns. This the right path to sustainable debt levels.

  • Odilim Enwuegbara (Development economist)

It depends on what we are borrowing the money for. It also depends on whether we are borrowing domestically or externally.

If we are borrowing for recurrent spending instead of capital spending, then it is dangerous. It is because such consumption borrowing will only add to the government already huge and difficult-to-service domestic loans.

If we are borrowing for capital spending, then we still have appetite for infrastructure borrowing, especially given our huge social infrastructure deficit.

Of course, the best borrowing for capital spending at this point in time is external borrowing. This is because unlike peer economies whose external debt to GDP ratio is as high as over 50 per cent, because we are still below 8 per cent that makes us most creditworthy than all our peer economies.

But the caveat is that we don’t borrow for white elephant projects or borrow externally without first having a holistic debt sustainability analysis. This is because it is the debt sustainability analysis that will fully disclose our repayment plan along with the return on debt ratio.

As it is now, it is dangerous to continue increasing our domestic debt profile which is why our debt service to revenue ratio, caused by expensive domestic borrowings, is dangerously high at 70 per cemt, the highest among peer economies.

We should henceforth put a stop to borrowing for recurrent spending caused by big government. We should come up with some unconventional ways of increasing our tax revenue drive; including making sure that Value Added Tax revenue is drastically grown. Not only by increasing the number of companies that collect VAT, but also making sure that collected VAT is fully remitted to the Treasury Single Account, without part of it being diverted.

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