Buhari’s Craving For Loans Puts Economy in Jeopardy •Nigeria In Fiscal Mess •Recession Bites Harder

By on April 21, 2017

YAHOO GMail

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Buhari
Buhari

The Minister of Power, Works and Housing, Mr. Babatunde Fashola, is the leader of a team comprising key officials in his ministry and the Office of the Vice President. 

The team is in Washington D.C. to meet with the World Bank Group to discuss and possibly conclude operational terms in the power sector recovery plan, which both parties have worked on and agreed to use to respond adequately to the current challenges threatening Nigeria’s electricity sector.

The meeting is holding on the sidelines of the annual World Bank/International Monetary Fund (IMF) spring meetings.

To cut to the chase, the Federal Government is again sourcing for fund.

Analysts have cautioned the government against plunging the nation into another debt trap, even as there are plans to raise funds from external sources to finance critical infrastructure.

If the federal and state governments continue to rely heavily on debt instruments for the financing of the country’s infrastructure needs, then, Nigeria’s total debt burden will be hitting the N19tn mark by the end of this year.

Based on figures obtained from the Ministry of Budget and National Planning, the country’s total debt stock is expected to rise by N6.72tn this year from the 2016 figure of N12.58tn, making the total debt liability to rise to N19.3tn by the end of 2017.

The frequency of borrowing by the federal and state governments has become a source of worry to many analysts, who sound a note of caution that the country may be heading for another debt trap if restraint is not exercised.

According to the Economic Recovery and Growth Plan, Nigeria’s public debt has increased in recent years as the Federal Government has increased borrowing to finance budget deficits owing to declining revenue.

The country’s domestic debt profile is expected to rise by N2.34tn to N12.43tn this year from N10.09tn in 2016, while the foreign component is being projected to increase by N4.38tn from N2.48tn to N6.86tn.

The document stated that the focus of the government’s debt would be shifted from domestic borrowing to foreign sources, as loans from international financial institutions are cheaper and have longer repayment periods.

For instance, the ERGP stated that while the proportionate share of foreign financing would increase from the current level of about 28 per cent to almost 72 per cent in 2020, that of domestic financing would decrease gradually from about 54 per cent in 2016 to about 26 per cent by 2020.

The Federal Government is currently seeking $29.96bn in loans from the World Bank, African Development Bank and Japan International Cooperation Agency.

The other international financial agencies the government plans to borrow from are the Islamic Development Bank and China Exim Bank.

Some of the projects to be funded by the loans are the Mambila hydroelectric power, $4.8bn; railway modernisation (Calabar-Port Harcourt-Onne Deep Seaport segment), $3.5bn; Abuja mass rail transit project (phase two), $1.6bn; and Lagos-Kano railway modernisation project (Lagos-Ibadan segment, double track), $1.3bn.

The rest are Lagos-Kano railway modernisation project (Kano-Kaduna segment, double track) $1.1bn; ‘others’, $6bn; Eurobond, $4.5bn; Federal Government Budget Support, $3.5bn; social (education and health), $2.2bn; agriculture, $1.2bn; and economic management and statistics, $200m.

The Budget and National Planning ministry said with the shift in focus to more foreign borrowing, the domestic financing sector would be more available and accessible to the private sector, thus avoiding crowding out.

This, it added, would provide the private sector with a leading role to drive economic growth, create jobs and reduce the rate of poverty in the country.

The ministry noted that the projects that would be financed with external loans would be those that would support non-oil exports, and/or reduce import-dependence such that there would be no risk of external debt overhang.

Putting the matter in the right perspective, the World Bank, recently, cautioned Nigeria and other African nations against excessive debts, urging a balance between massive spending for development on the one hand and moderation in borrowing on the other. 

The Chief Economist for African Region, Albert Zeufack, explained that, “What is good for Nigeria is that debt to the GDP ratio is still low but the debt to revenue ratio is already high. 

The International Monetary Fund (IMF) simplified the debt issue better, when it said 66 percent of Nigeria’s tax revenues is spent on servicing debts. 

The IMF Fiscal Monitor briefing in Washington, Vitor Gaspar, director of the fund’s Fiscal Affairs department made this observation.

Speaking further on the issue, Zeufack said, “The environment of weak economic growth comes at a time when the continent is in dire need of necessary reforms to boost investment and tackle poverty. 

“Countries also have to undertake much-needed development spending while avoiding increasing debt to unsustainable levels. 

“Fiscal restructuring is going to be challenging and the government has to be careful in order to balance efforts to develop the country with a moderation in borrowing.” 

Focusing on Nigeria, the Chief Economist admitted that the libralisation of the exchange rate, being advocated by some international organizations, could create inflationary pressures but that with tightening of monetary policies, inflation would reduce. 

Zeufack stressed the need for continuous investments in the nation’s infrastructure and those of other African countries, noting the existing of very wide gaps. 

Recovery, he said, remains weak, with growth expected to rise only slightly above population growth, a pace that hampers efforts to boost employment and reduce poverty.” 

He, however, described it as “a weak growth” and that “the per capita income growth remained negative because the growth does not keep pace with the population growth rate.” 

Addressing the issue further, the World bank said, although Nigeria’s total current debt is relatively low compared to the Gross Domestic Product, the interest rate payment is not sustainable by current revenues, the World Bank has said.

Senior Economist at World Bank office in Nigeria, Yue Man Lee, said this in Abuja, recently.

For the interest payment to be sustainable, according to Lee, the country either has to increase its revenues or work towards balancing the debt profile to make way for more foreign debt rather than allow the continued dominance of local debt with high interest rates.

She said, “Nigeria’s debt to GDP ratio is relatively low. What is of concern is the ratio of interest payment to revenue. That is what is concerning. This reflects the fact that there has been a massive drop in revenues because of the drop in oil revenues.

“There are two main strategies to reduce this debt burden. One is to increase the revenues. Here, in order not to be vulnerable to the volatility of the oil sector, the critical thing is to increase the non-oil revenues like the VAT, the income taxes and the excises outside of oil. This is something we have been discussing with the government about.”

Lee added, “The other area in terms of interest payment is to look at the debt profile. Right now, most of the debt is domestic debt – short term domestic debt – and so, the government has already expressed the strategy to move towards external longer-term debt. You have seen them issuing Eurobonds successfully as part of that strategy.

“The key thing for us in terms of sustainability of the debt profile is raising revenues. That is just the key thing.”

The Emir of Kano, Muhammadu Sanusi II, had also cautioned the Federal Government over the increasing debt in the country.

He stated that among other producing countries in Africa, Nigeria has been on a borrowing bench, “Borrowing domestically to fund current expenditure.”

He added that the growth of Nigeria was driven largely by rising commodity prices and debt, and the module has reached the logical limit such as the collapse in oil price.

He said according to the International Monetary Fund (IMF), the Federal Government of Nigeria is spending 66% of its interest revenue on debt, which means only 34% of its revenue is available for capital expenditure, recurrent expenditure and development.

He said the 2017 budget presented by the Federal Government is a budget that goes for more debt.

He noted that, “As a country, we must understand that the module of government borrowing and spending has reached its limit, therefore growth must only come from investment”.

The Emir crtiticised leaders that go to China to sign MoU and come back with debts forgetting their areas of development.

“A nation and a state is only transformed by vision, once that vision is lost every other thing around the vision collapses.”

He added that the growth of an economy will not come by borrowing.













Source cattnews

Posted 21/04/2017 6:47:18 PM

 

YAHOO GMail


 

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