Finance Minister, Dr. Ngozi Okonjo-Iweala recently announces that the country was on the verge of securing a loan of $550 million from the World Bank to revamp the Agricultural Sector and also create jobs for many Nigerians. In this report, Kazeem Akintunde ?looks at the merits and demerits of getting foreign loans few years after exiting the Paris Club of Creditors.?
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Finance minister and co-coordinating minister of the economy, Dr. Ngozi Okonjo-Iweala, recently announced that the country was on the verge of obtaining a $550m loan from the World Bank to revamp the nation’s agricultural sector and also create jobs for many Nigerians. ?
? ?Few days after she was sworn in, Okonjo-Iweala confessed that the Nigerian economy, ?with a debt profile of $39.7bn, was “still in a very good shape”.
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?The minister, in her maiden address to journalists in Abuja, said ?that Nigeria’s debt now stood at N5.2trn for domestic debt and $5.3 bn for the external debt.
“Nigeria has $39.7 bn total debt stock which is 20 per cent of her gross domestic product. The country is still in very good shape in terms of GDP, but we should start worrying when national debt hits 60 per cent of the GDP.”
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?She, however, lamented that of the 20 per cent GDP debt stock, 17.5 per cent of it was domestic debt, and insisted that Nigeria will have to watch her domestic borrowing.?
“Nigeria has to reduce borrowing, but cannot stop borrowing immediately, because it will be a shock to the system. The government has said it will put the trend on a down ward path on domestic debts, because whether the government likes it or not, it is bound to respect the terms of the bonds
it is holding and other financial commitments.”
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While she preached the need to reduce domestic borrowing, no one had any idea that she is, however, on the verge of securing a $550m foreign loan from the World Bank for the nation.
The minster, who dropped this hint in an interactive session with newsmen in Washington DC at the World Bank/International Monetary Fund (IMF), said the response of the multi-lateral institution to Nigeria’s request has been “quite encouraging” and that the deal would be “finalised when the new World Bank country director arrives in Nigeria”.
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?“We have an ambitious programme to create jobs. One of the several priorities is agriculture. We have very detailed plan for investment in agricultural sector. One of the things we did here in Washington was to start negotiating for extra financing from the World Bank. We are in discussion with them to see if they can advance about $500m to support the sector and the environment, because we see agriculture and environmental issues desirous of support,” she said.
That was not all: she went on to reveal that part of the funds will be used on the environment.
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“We have also entered into discussion of $50m to support the environment and $500m for agriculture. It is not concluded yet, but it is looking positive and we are very happy with what is happening. We will conclude it when we get to Nigeria and the new country director arrives,” she said.
The question many Nigerians have been asking is, “Why must we take another loan when we have just paid back huge sums of money to be free of the bondage of the Paris Club?” Many financial analysts and economists who spoke with LEADERSHIP SUNDAY on the issue have been givng
credits to the minister for her move.
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?Indeed, economist, Ayo Teriba, provided an insight into why the loan may be necessary.?According to him, it would be wrong to equate the debt owed the Paris Club of Creditors to that given out by the World Bank. “You should note that the loan we paid back in 2005 was to the Paris Club of Creditors. The loan the minister intends to get for the country is coming from the World?
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Bank. Being a member of the World Bank by virtue of our membership of the United Nations, we are entitled to take loans from them. You should know that these loans are from the contributions of member states. Why should we not benefit from a body that we pay our dues to?”?
Teriba is of the view that since the loan is granted on liberal terms, it will be fool hardy for the nation not to take it.?
“Nigeria, as a member of the United Nations, must benefit from the World Bank, since the interest and the terms of payment are very liberal. A chunk of the loan comes from dues and contributions of member nations, so we must not reject what rightly belongs to us.”
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Besides Teriba who is positively disposed towards obtaining the loan, the managing director, Financial Derivatives, Bismark Rewane, also advised that the nation go ahead with the loan, as it is accompanied by low interest rate. ?“Yes, Nigeria should obtain the loan. In fact, it is part of our right as a member of the United Nations. This loan is quite different from the one we took from the Paris Club, and I believe that if effectively utilised, it will go a long way in revamping the agricultural sector,”Rewane said.
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Speaking in the same vein, the national publicity secretary of the Action Congress of Nigeria (ACN), Alhaji Lai Mohammed, said that there was nothing wrong in the country taking loan for a specific project, provided the money would be utilised for the purpose it was meant for.?
Muhammed’s position tallied with that of most Nigerians, as they are of the view that the loan, if eventually obtained, may end up in the pockets of civil servants and other top government officials who end up diverting the loans for selfish purposes.
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a Lagos-based business and financial lawyer, Remi Ogunmefun, is of the opinion that most of the loans taken by African countries were not obtained for the interest of the state, but to strengthen the rule of despotic African leaders. He even alleged that most of the loans ended up in the pockets of third world leaders, who re-routed the money back to western banks.
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“Foreign debts are incurred without the clear mandate of the people and nobody knows about them. In some situations, most of the debts ended up on dubious projects,” he said.
To avoid this unfortunate situation, he advocated for the immediate review of the process for incurring foreign debts in Nigeria.?
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“It is in the interest of the world that dubious loans which continue to generate poverty among our people be disallowed globally. Nigeria should have a law regulating the conditions and process for international borrowing.”
He also advocated for a process whereby any future international borrowing which will require a federal or state obligation to repay must be ratified by the National Assembly before it can be incurred.?
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“Both houses of the National Assembly should constitute committees to be charged with the oversight function of reviewing Nigeria’s foreign debt from time to time.
“We must be able to determine the nature, size and loan repayment that our country can carry , in order not to hurt our development process as a nation, while dependence on foreign loans and aid should be discouraged. We must encourage inflow of foreign investment into Nigeria.”?
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Though he gave credits to the present administration in their efforts towards attracting foreign direct investment, FDI, into the country, he said there was an overwhelming need for more efforts to be channeled in that regard.
“The present government has done a lot in this regard. Since foreign investment is a source of foreign capital and technical skills, it will create new jobs and growth. We must continue to strive to eliminate our recourse to international borrowing, especially for those who do not promote growth,” he said.
One person who was against Nigeria’s move to obtain a $500m loan for the agricultural sector is newspaper columnist, Tola Adenle.?
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In a recent article, Adenle wondered why a country as “rich and blessed as Nigeria” would go after a $500m World Bank loan.
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“Why does Nigeria need to borrow $500m for agriculture? ?How much of this would be looted and how much would actually go into the intended project? ?Why must Nigeria take this loan, a few years after fleeing the bondage of debtor-dom? ?
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“It is no secret that Nigeria takes grants as little as $600,000, a huge portion of which is often misappropriated by civil servants and those who execute these projects, supposedly meant for the people. ?“What have Nigerian leaders been doing with the nation’s massive oil resources when they seem to need loans and grants for more than a fair fractionof our needs?”
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Besides the issue of the loan, Adenle is also not favourably disposed to the second coming of Okonjo-Iweala as finance minister, as he believes that her loyalty would be to the Brentton-Woods Institution.
“The World Bank, where she rose to the position of managing director, is her main boss, and she cannot but owe allegiance to them. In addition, by her education and training, she apparently believes this prescription of more borrowing would eventually work. It is very much akin to administering chemotheraphy, until eventually, the cancer may die, and the patient with it. A couple of years after Nigeria became debt-free under Iweala’s guidance, we are back in the debt trap.”
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Some Nigerians were of the opinion that the country has no business borrowing money again to finance any project, if, “What we have realised from crude Oil sale have been effectively utilised”.
Nigeria, once a net lender to the World Bank between the early and mid-70s, has became heavily indebted to the same institution and commercial banks since the early 80s, ?because it got ‘persuaded’ into a borrowing spree, thanks to the slogan that “Nigeria is under-borrowed!”
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The idea of borrowing to finance key projects in African countries, however, has been a thorny issue, as far back as 1982, by former World Bank president, A. W Clausen.
In an address at the Nigerian Institute of International Affairs in Lagos on April 15, 1982, Clausen had warned about the disquieting prospect of ?“an absolute worsening of circumstances for millions of Africans in the years ahead” but, nevertheless, admitted that “no single development strategy works best anywhere”. Yet, Nigeria bought the Structural Adjustment Programme (SAP) menu of the IMF in 1986.
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?Already, the plan by the federal government to remove fuel subsidy next year was interpreted as “another World Bank prescription forced down our throat by the minister”.
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Former military president, Ibrahim Babangida, awakened the consciousness of Nigerians on the foreign loan issue when he politicised the taking of loans from the IMF immediately he came into office. ?He specifically called for a debate on the advantage and disadvantages of obtaining the loan, and after so much confusion, he secretly took the loan, in spite of calls by many Nigerians to his government not to take the loan.
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By 2005, the nation’s foreign debt profile was so huge that she spent huge sums annually to service the interests, while the the main principal remained unpaid.?
The nation exhaled in relief, when in June of the same year, news broke that the Paris Club of Creditors had granted Nigeria debt relief. ?The then finance minister, Ngozi Okogo-Iweala told the nation that about $18b of our debts would be “written off,” while the country intended to buy back a
chunk of the remaining loans.?
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In order not to be roobed of the glory the debt relief supposedly conferred on him, then president, Olusegun Obasanjo, on June 30, 2005, addressed the nation on the success recorded by his administration and those in charge of managing the nation’s economy.
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?“Six years into the present democratic dispensation, we have definite achievements and dividends of democracy to report. Since April 1999, after my success in the election of February 1999 and pending formal inauguration, I was opportuned to travel to some important countries of the world to meet with their leaders in preparation for assumption of office.?
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“As early as that time, I was already asking world leaders for debt relief for Nigeria in addition to wooing investors. What we have now been given assurance to expect by the Paris Club is that Nigeria will clear its arrears of $6bn of the $30bn owed, following which there will be a stock reduction on Naples Terms, while we will have to buy back the remainder. This will represent, for the first time, a total exit, if you like, total freedom from the Paris Club’s debt,” Obasanjo said.
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With the expected injection of $550m into the economy which, if finally obtained, would be devoted to the agricultural sector, it is hoped that the sector which has the capacity to generate huge amounts of money for the country and, at the same time, create jobs for millions of Nigerians who are presently unemployed, will take its rightful place in the country’s development process.
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