Dangers of Jonathan’s $7.905Bn Loan Proposal

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President Goodluck Jonathan is seeking the approval of the National Assembly to borrow $7.905 billion (about N1.3 trillion) from five financial institutions, the World Bank, African Development Bank (ADB), Islamic Development Bank, Exim Bank of China and Indian Lines of Credit. In a letter of his intention to take the credit facility, addressed to the Senate President, David Mark and Speaker, House of Representatives, Aminu Tambuwal, President Jonathan said his administration was in dire need of funds to execute some critical projects.
Such projects are employment generation and the pipeline project as contained in the Medium Term (2012 -2014) External Borrowing Plan. The two projects, the President added, are designed to rev the economy back to growth. According to him, the Pipeline Projects have already reached various stages of completion. All of these is said to be in line with the “transformation agenda” of his government, which cuts across various sectors of the economy. Both chambers of the National Assembly have already referred the President’s request to their respective committees on Appropriation and Finance, and discussions on the credit facility are already receiving attention.
On the face of it, we are not opposed to borrowing, either within, or external. Ordinarily, the essence of credit facility by government is, in the main, to address critical problems or initiate projects that should accelerate the development of the country. Ideally, true transformation of the economy involves deliberate planning. And borrowing can, if well utilized, be used to address such developmental challenges. Undoubtedly, creating employment opportunities can go a long way in addressing some of the problems facing the country today. A recent statistics from the Ministry of Youth Development shows that 28.14 million youths, representing 42 percent of the youth population, are jobless. Government has the responsibility to address the situation. We are aware that the President, a few months ago, launched a new job creation scheme code-named YOUWIN, with initial take-off capital of N50 billion. However, the programme, specifically targeted at youths with bright business ideas, is yet to take off.
If the basic credit factors are anything to go by, mainly, the borrower’s character and soundness, the intended use of the loan and the primary source of repayment, we have our doubts if the present credit facility that Mr. President is seeking will be used for the purposes they are meant for. It is our worry because successive governments in the country, including the present administration, have had unprecedented record of unfaithful implementation of projects for which loans were taken.
The result is that frequent borrowing could worsen Nigeria’s public debt profile. For instance, in 2010 alone, this administration’s external borrowing to service governance, that is, payment of salaries and allowances of political officials, amounted to 16 percent of the Gross Domestic Product (GDP). This is scandalous and a great harm to public service, and the economy. More worrisome is that the misapplication or misappropriations of credit facilities from financial institutions, such as World Bank, ADB and others, have reached unsettling proportions in recent years. As at 2011, figures from the Debt Management Office (DMO), the nation’s custodian of public debts, put the total national debt at N6.189 trillion (about $39.72 billion). Of this amount, domestic debt stands at N5.21 trillion, representing 17.52 percent of the GDP, while external borrowings stand at N1 trillion.
While this figure is $4 billion above “crisis level”, it is a warning signal that Nigeria may be tethering on the verge of bankruptcy and grim economic outlook. What is happening in Greece now is a telling lesson of how not to mismanage the economy, either through outright misapplication of loans taken or default in repayment. It is not just enough to take a credit facility; it is the effective utilization of it that matters. Regrettably, governments at all levels have not been prudent in the management of both domestic and external loans taken.
Beyond that, our budgets are not faithfully implemented, and that casts serious doubts on the current credit facility the President is seeking. Will it not suffer the same fate like previous ones? The better and proper thing for the Federal Government to do would have been to concentrate on those projects that it can execute with the funds appropriated for them in the budget rather than committing the country to further debt. If the National Assembly endorses the President’s request, our debt stock will rise to N7.489 trillion. That could be harmful in the event of default in repayment. We therefore, urge the Appropriation and Finance Committees of both chambers of the National Assembly to do that which is necessary and avoid putting Nigeria in jeopardy.

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