The World Bank has disagreed with the
Minister of Finance, Mrs. Kemi Adeosun, on the need for the Federal
Government to borrow more in order to develop the nation’s
infrastructure and stimulate the economy.
The World Bank spoke through its Senior
Economist, Gloria Joseph-Raji, on Monday in Abuja, saying that the cost
of borrowing or paying interest on Nigeria’s debt was not sustainable as
revenues to make such payment had dried up.
She spoke with our correspondent on the sidelines of the lunch of Africa Pulse, a biannual report on Africa.
Adeosun said on Sunday at a press
briefing rounding off the World Bank/International Monetary Fund annual
meeting in Washington DC, United States that Nigerians would have to
tolerate more borrowings in the short term for the government to deliver
critical infrastructure.
But Joseph-Raji said that dwindling
revenues had raised a concern both at the Federal Government and the
World Bank on sustainability of Nigeria’s borrowings as debt-to-revenue
ratio had increased by 25 per cent within a period of one year.
She said in 2015, the country’s debt to
revenue ratio stood at 35 per cent but rose to 60 per cent by 2016,
reflecting a reduction in government revenues and rising debt profile,
thereby raising a question about the debt sustainability.
Joseph-Raji said, “Nigeria has a decent
debt-to-GDP ratio, currently about 19 per cent. It is the debt to
revenue ratio that is of concern and that rate is a sustainable issue.
That is of concern to us and that is also of concern to the government.
“The government is aware that the debt
is looking more unsustainable from the point of debt service to revenue
ratio. The estimate we had for last year at the federal level was about
60 per cent. That is coming from about 35 per cent in 2015.
“That reflects the substantially lower
revenues that Nigeria recorded last year. Even among the state
governments; we know that a lot of state governments are servicing a lot
of debts from their federation account allocation. So, there is really
going to be a sustainable issue emerging.”
The World Bank expert said she was
concerned about the sustainability of the country’s debt, especially the
huge domestic borrowing with high interest rate, which prompted the
Debt Management Office to come up with a strategy to rebalance the
country’s debt portfolio.
She said, “The DMO released the Debt
Management Strategy 2016 to 2019 last year. The strategy was to
rebalance the debt portfolio from more of domestic now to more of
foreign. That is because of the debt servicing cost.
“Before now we had a debt portfolio of
about 80 per cent domestic to 20 per cent external. We know that the
debt servicing cost of domestic debt is really high. Treasury bill is an
average of 18 per cent; the FGN bonds, from 16 per cent. The government
is trying to rebalance its portfolio with foreign debt, which has much
lower interest rate than domestic debt. That is why this year you have
seen them go for Eurobonds, with a total of $1.5bn in the first quarter
of the year. They also did Diaspora bond of $300m. If you look at the
yield on those bonds, they are much less than 10 per cent.
“The government is aware that there is a
sustainable issue and that is what they are trying to correct by taking
more foreign debt.”
Joseph-Raji said in the light of
expenditure exceeding revenue, government should borrow, but it should
borrow in a manner that was sustainable.
Also speaking on the issue in an
interview with our correspondent, the Head of Abuja office of Social
Action, a Non-Governmental Organisation active in debt relief advocacy,
Mrs. Vivian Bellonwu-Okafor, said the government needed to think about
better ways of managing the economy.
She said borrowing $3bn from abroad to refinance local debts was replacing one evil with another evil.
Bellonwu-Okafor said foreign borrowing would invariably lead to annual debt servicing in hard currency to foreign lenders.
She said, “The $3bn debt refinancing
arrangement, as proposed by the Federal Government, does not solve the
country’s rising debt problem; it merely trades one evil for another.
“Borrowing longer-term foreign loans to
pay off maturing short-term domestic debt, instead of taking actual
steps to gradually reduce and exit debt overhang, is a demonstration of
poor economic management.
“Several developing countries have
adopted far-reaching domestic strategies to mitigate the effects of
international market shocks and global financial crisis. While countries
like Malaysia are increasing internal investments to develop their
economies and make them as independent and vibrant as possible, rather
than shrink deeper into global financial waters, Nigeria seems to be
doing quite the opposite; preparing frameworks and opportunities for
more foreign exchange and capital flight from the country in annual debt
servicing.”
In another telephone interview with our
correspondent, a financial expert and associate professor, and Head of
the Department of Banking and Finance, Nasarawa State University, Dr.
Uche Uwalaka, said there was no doubt that Nigeria’s debt to revenue
ratio was high.
According to him, the use of the index is a better way to measure a country’s capacity to pay debt and interest.
Although he said that the country hardly
had any better option than to borrow, he insisted that debts should be
tied to projects that were self-liquidating.
He said, “There is no doubt that the
country’s debt burden is high going by the debt to revenue ratio. There
are other measures of the debt burden such as the debt-to-GDP ratio,
which is currently around 18 to 19 per cent.
“External debts are cheaper to service
especially when they come from multilateral sources. The attention of
government has shifted to foreign debt. I am in support of government’s
plan to borrow $3bn to refinance some local debts. What is important is
that the National Assembly and other agencies should focus on is the
monitoring of what we do with foreign loans. This is because foreign
loans also have their own risks such as shock in exchange rates.”
Uwalaka said other options to borrowing
such as sale of national assets, increase in taxes and printing of money
were not viable in the present circumstances of the country
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