IT seems the argument —the wisdom, or otherwise, of living in borrowed times, spending what is yet to come, almost like eating the future — will never end.
On a larger scale, those who simply do not like the face of President Goodluck Jonathan say Nigeria, the African giant, aptly fits into this description, borrowing in times of plenty and lack.
As former Finance and Transport Minister, Dr Kalu Idika Kalu, would advocate, aggressive borrowing at concessionary rate for infrastructure building is desirable for a developing country like Nigeria.
Globally speaking, government budgets are often in deficit — meaning that expected expenditure weighs (but not always heavily) against expected income — and those who run the political economy borrow to fund these fiscal gaps.
The reason is simple: Rather than wait for several years, say 20 or 30 years, to accumulate enough funds to undertake certain projects, governments, specially in the developing world, borrow, hoping and planning to be able to repay and service the debt with the expected revenue.
Besides, as regulators in an economy, governments could borrow, not because they needed to borrow money, but because they want to be at the bottom of earning to create the necessary environment for stability.
However, these “excuses” only sit well for tax-based economies, which struggle to “eke out a living.” Nigeria’s oil wells that have gushed out over N50 trillion in the last 13 years (going by trend of figures released by the National Bureau of Statistics (NBS)), would testify against its membership of this club. Having earned so much from crude, the country appears to have abandoned its heritage in Agriculture, solid minerals and tourism (remember the Yankari Game Reserve, the Ogbunike Cave and others).
Just two weeks ago, Dr Ngozi Okonjo-Iweala, the amiable Coordinating Minister for the Economy, who doubles as Finance Minister, was forced again to issue a statement, announcing that the nation’s foreign debt is just a paltry $6.67 billion.
Paltry? Conventional global econometrics put the red line for sovereign debts at three percent of the country’s Gross Domestic Product (GDP); and the Minister’s figure represents three percent of Nigeria’s GDP. A safe zone, one might say!
But GDP calculation, many argue, could come with some tinge of “gerrymandering.” Nigeria, presently calculates its real GDP using 1990 prices as the base year.
Media reports, early in the year, stated that the NBS was poised to re-base the real GDP. Rebasing the real GDP would allow the NBS to increase the 1990 base-year prices to 2008, meaning that real GDP would be calculated using 2008 prices.
The real GDP — the total output of goods and services produced in an economy at the prices of a particular year (1990 in Nigeria’s case), often referred to as the base year — as opposed to nominal GDP, reflects the real value of goods/services produced in a given year.
While nominal GDP is calculated using current market prices (this is an unreliable estimation when it comes to determining impact on quality of lives), the real GDP is often adjusted for inflation to provide a relatively true picture of the purchasing power.
International “business partners”, therefore, deal with countries based on their real GDP, which derives strength from a particular base-year considered realistic enough to even out attendant oddities in inflation, governance and other issues.
The implication of rebasing to higher prices of a more recent year, is that the country’s GDP could be higher than normal, giving the erroneous impression of buoyancy that would, at least, sustain pass-mark verdict (going by ‘nominal’ numbers).
Expectedly, those, who should know — including Professor Akpan Ekpo of the West African Institute for Financial and Economic Management (WAIFEM) and financial analyst Bismarck Rewane — reportedly raised the red flag:
As Rewane rightly put it, this could provide the needed political mileage for government; but it amounts to slipping into high-heeled shoes just to appear tall.
Reports quoted concerned analysts as warning of significant decline in foreign aid (as if we should continue to depend on crumbs from masters’ tables) from multilateral donor agencies and developed countries.
Rewane reportedly observed that higher nominal GDP figure would help Nigeria’s status move some rungs up the ladder — from a low-income to middle-income country; but analysts warned that artificial bloating of real ‘income,’ could ‘asphyxiate’ Nigeria’s foreign aid and support as low-income African giant.
The nation’s nominal GDP estimate currently stands at $273.8 billion, with real GDP estimated to decline from seven percent to five percent in 2013.
Should the NBS have its way (moving from the 1990 prices to 2008 prices), therefore, nominal GDP could jump to some $4oo billion.
Applying the maximum deficit-to-GDP-ratio of 3.0 per cent, the upper borrowing limit for government will increase. And the mathematics is simple: three per cent of $400 billion means more legitimate window for external (and even internal) borrowings.
In fact, by the proposed new standard, the country needs to borrow, at least, $12 billion to begin to flout any fiscal rule ‘common-sensically.’
The Finance Minister’s figure of $6.67 external debt could be three percent of GDP, going by the 1990 base-year standard, but it means that the country largely remains ‘under-borrowed’ and actually has another $5.33 billion to attain the upper limit if the NBS carries out its “threat.”
However, while borrowing (when it is specifically done for infrastructure/real human capital building and development) is not bad in itself, countries would not want to deliberately “beef up” GDP numbers just to look politically beautiful.
On fears over rising profile of public debt, Director-General of the Debt Management Office (DMO), Dr Abraham Nwankwo, in Lagos stressed, “the body posture of government is very much in consonance with the posture of the Nigerian people. And that is, the growth of debt is not an objective in itself; it is the objective of government to moderate the rate of growth of both external and domestic debt.” He said the Federal Government hopes to use the paraphernalia of public debt “to encourage private sector to take the lead in taking advantage of both the domestic and external market to mobilise resources to grow the economy, to generate employment and to generate growth and reduce poverty.”
This position, coming from the appropriate quarters, is considered heart-warming in view of ongoing debate over external and domestic debts.
But he made further clarifications: Contrary to popular understanding, it was never the intention of government to exit — and the country, as a matter of fact, did not exit — the Paris Club in 2005. Nigeria decided to exit the Paris club and the London Club debt but certainly not from borrowing from the occasional windows of the World Bank, the African Development Bank (AfDB), the African Development Fund and the Islamic Development Bank.
“It is not correct to say that Nigeria completely exited its external debt; it is not a desirable objective. We borrowed from the World Bank, AfDB, which is still remnant of 3.5 billion, to fund projects in education, in water and in water supply and other social services,” Nwankwo disclosed in Lagos. And the bulk of foreign debts in states come from these sources mentioned by the DMO boss.
Debt Burden In States
Consequently, States now bite off more than they can chew; and straight figures from the DMO are loud enough to prove this.
The total external debt stock for the 36 states and Federal Capital Territory (FCT) stands at $2,384,178 million; debt service in 2012 gulped $76.78 million from the states.
Lagos, Kaduna, Cross River, Ogun, Oyo, Katsina, Bauchi and Akwa Ibom States occupy the highest rung of the debt ladder. Their debt stock are Lagos, $611.25 million (25.64 percent); Kaduna, $215.68 million (9.05 percent); Cross River $113.03 million (4.74 percent); Ogun, $102.06 (4.28 percent); Oyo, $76.68 million (3.22 percent); Katsina, $74.69 (3.13 percent); and Bauchi, $67.13 (2.82 percent).
Conversely, Borno, Delta and Plateau States have the lowest debt stock, ‘booking’ relatively paltry $14.15 million, $18.99 million, and $21.93 million, representing 0.59 percent, 0.80 percent and 0.02 percent respectively.
On the local scene, the bond market is another borrowing platform with states like Rivers, Ogun, Oyo, Lagos and others either coasting home with funds or seeking necessary approvals to do so.
Conflicting signals over the debt burden issue prompted The Guardian to take a “tour” of some of the States and the avalanche of complaints were as stunning as they were interesting:
The Kaduna State Government has been under pressure over domestic and foreign debts incurred to finance various programmes, which the opposition considers as elephant projects.
The State’s foreign debt stock has reportedly hit over $380 million and domestic debt N45 billion since the former governor, and now Vice President, Alhaji Namadi Sambo, handed over to the late former Governor, Patrick Yakowa.
It is believed that debt servicing took a toll on the State’s economy, dwarfing the developmental efforts of the deceased governor, Yakowa.
The Kaduna State Chapter of the Action Congress of Nigeria (ACN) recently urged Governor Yero to resign if he could not run the State without foreign loans.
State Chairman of the Party, Mohammed Soba, in a statement called on the State Assembly to probe all foreign loans obtained by Governor Yero with a view to ascertaining their economic viability.
In Lagos, Commissioner for Budget and Planning, Mr. Ben Akabueze, explained why he could not give specific figures on the state’s debt profile.
Akabueze said: “We are not talking of static figure. By the time we conclude today’s activities, the figure must have either moved up or down. “If you are expecting me to give you specific amount, I am not going to do that,” he said.
The commissioner described as immaterial, the issue of ascertaining the exact amount of debt.
“What is going round as the figure is, at best, an aggregate sum. However, what is important is the sustainability of the debt. In Lagos State, the aggregate debt amounts to less than one percent of annual revenue. Because of this, it is not correct to say the State is having financial problem”, the Commissioner said.
Although no government official in Cross River is willing to comment on the exact debt stock of the State, it was gathered that much of its debt was incurred during the construction of Tinapa Business and Leisure Resort, as well as the Cable Car in Obudu Mountain Resort under the administration of former Governor Donald Duke.
In Ogun, eyebrows are being raised over the rising debt profile, as political watchers, including the opposition, hide under the ensuing debate to criticise government.
This is notwithstanding that fact that the Ibikunle Amosun administration has received praise in several quarters over its “urban renewal policy.”
All in all, many an analyst would say borrowing in the midst of plenty is a red flag for corruption; when borrowing is done without clear-cut strategies, the polity suffers. After all, didn’t former US President, Benjamin Franklin (incidentally from the same Western world) warn that he who goes a borrowing goes a sorrowing?
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