LCCI, analysts seek FG’s clarification on $29.96bn loans

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..as BMO says loan absolutely necessary

By Kayode Tokede

The Lagos Chamber Of Commerce & Industry (LCCI) and some analysts are seeking clarification from the federal government on the proposed $29.96billion loan.

President Muhammadu Buhari had asked the Senate to approve an external loan of $29.96 billion to execute key Infrastructural projects across the country.

Buhari in the letter said he decided to represent the request for external loan of $29.96billion, part of which was rejected by the Eight National Assembly, to finance key projects in different sectors of the economy.

In his response, the Director General, LCCI, Mr. Muda Yusuf in a statement on Sunday said, “There is a need to clarify place of the new loan request in relation to the 2020 budget and the 2020 -2022 medium term expenditure framework.

“Additional borrowing should strictly be in line with section 41 of the Fiscal Responsibility Act which stipulates that ‘Government at all tiers shall only borrow for capital expenditure and human development, provided that, such borrowing shall be on concessional terms with low interest rate and with a reasonable long amortization period.”

According to him, the growing National debt is a cause for concern as the debt profile grew from N12.6 trillion in 2015 to N25.7 trillion in 2019 second quarter, an increase of 104per cent.

He noted that there is also the bigger worry about the capacity to service the debt.

He explained that, “For instance, the debt service provision in the 2019 budget was a whooping N2 trillion; whereas the total capital budget was N2.9 trillion; this implies that the debt service commitment was 70per cent of capital budget allocation.

“Debt to revenue ratio was about 30per cent, which is also on the high side.

“In the 2020 budget, debt service commitment and recurrent spending are beginning to crowd out capital expenditure.  This trajectory is not consistent with our national aspiration to build infrastructure and a competitive economy.

“Debt service of N2.45 trillion is more than the capital budget of N2.14 trillion in 2020 budget.  That is 114 per cent of capital budget.”

He explained that the new request for $29.96 billion is troubling, calling on government to exercise caution in a move to avoid a full blown debt crisis.

He said further that, “The opportunity cost of high debt service commitment for the economy and citizens is very high.  There is also the exchange rate risk inherent in the exposure to mounting foreign debt which we need to worry about.

“As the currency depreciates, the burden of servicing foreign debt would intensify.  This is a major problem with increasing the stock of foreign debt.

“This underlines the need for appropriate policy choices to attract domestic and foreign private sector capital for infrastructure financing.  The government needs to look beyond tax credit in its quest for more complimentary funding sources for infrastructure.

“We should be looking more in the direction of equity financing.  But for this to happen the policy and regulatory environment must be right.

“It is also critical to review the spending structure of government and the cost of governance.  The ballooning recurrent expenditure, in the face of declining revenue is a cause for concern.”

Speaking with Nigerian NewsDirect, the Chief Executive Officer, Apt Securities & Funds Limited, Mr. Garba Kurfi, said, “My major concern is that already when you look at our 2020 budget, about 25 to 26 per cent of the budget is meant for paying and servicing debts.

“This is the situation we are now and that is a huge burden.      Why thinking about borrowing such amount of money? If you borrow the sum of $29.96bilion compared to the Country’s current exposure, you will see that it is almost 100 per cent of our current exposure that goes to foreign debt

“My concern is that we need to know what the money is meant for. Unless I’ve seen the projects the money is to be used for and the projects are viable enough, I cannot comment much.

“Globally countries get indebted, but if you are indebted wisely, there is no problem with that. When money is borrowed, it has to be invested where it would yield returns to pay back the debt and I do not have problem with that.

“The only problem is that, I do not subscribe to borrow for consumption. If the money is borrowed for capital expenditure, then the question is that what kind of capital expenditure is it? Is it viable enough? Is it necessary for the development of the economy?.”

Reacting also, MD/CEO, Enterprise Stockbrokers Plc, Mr. Rotimi Fakayejo said, “To me,y the issue on what form is it going to take? Are we going to have control on how we spend it? Was going to be the tenure of the loan?

“Because we’ve been borrowing $3billion, (and) its being a burden; so borrowing a lump sum of $29.96 billion, I don’t think we really need such at a time.

“My take is that if you take the loans on what projects are they spending the loans on? Secondly, what are we doing to boost our revenue generation and collections? If we are not productive, we have no business borrowing because at the end of it, we will use the fund to service debt and consumption for those who want to take money abroad.”

On a different perspective, The Buhari Media Organisation (BMO) said Buhari’s $29.96 billion external borrowing request to National Assembly for approval was in the interest of the country.

In a statement signed by its Chairman Niyi Akinsiju in Abuja on Sunday, BMO said the funds were necessary in order for the country to bridge the infrastructure gaps that were left unattended to by previous administrations in the country.

Akinsiju said if the requests had been fully granted in 2016, Nigerians would have seen more projects at various stages of completion across the country.

“Buhari has made a bold move by sending back the 2016-2018 external borrowing plan to the National Assembly for reconsideration.

“ Nigerians need to know that when the request was rejected by the 8th Assembly led by former Senate President Bukola Saraki and Speaker Yakubu Dogara in 2016, there was no debate on the merit or demerit of the plan.

“So a group of lawmakers who were antagonistic to Buhari and needed to extract their ‘pound of flesh’ took a step that denied Nigerians of massive infrastructure renewal.

“Just like the President said in the latest request, the lawmakers back then extricated and approved only a few out of the 39 projects the loan was meant for,” he said.

These, he said, included the federal government’s emergency projects for the North East and the Lagos-Ibadan segment of the China Exim Bank railway modernisation project which were at advanced stages of completion.

According to him, power generation and transmission were also at a higher stage than what the administration met in 2015.

“We invite Nigerians to see how well the loans were used for those projects in order to know what would have been if Saraki and Dogara had not constituted themselves into a joint stumbling block,” Akinsiju said.

He urged Nigerians critical of the President’s move to have a more positive outlook.

“We understand that the people have over the years got used to government officials misappropriating external loans. We recall, for example, the $470million CCTV project in Abuja, but we make bold to say this President is different.

“Aside from the Lagos-Ibadan railway project which is nearly completed, the second Niger Bridge is a good example of a promise that is almost a reality today, even as Nigerians know how previous administrations dithered on it.

“So, if the Buhari administration has opted to tie these loans for projects like the Mambila Hydro Electric Power Project, Coastal railway project including the Calabar-Port Harcourt-Onne Deep Sea Port segment, Phase 2 of the Abuja Mass Rail Transit Project, the Kano-Kaduna Segment of the railway project.

“The Lagos-Kano Railway Modernisation Project, as well as other projects on agriculture, health and educational sectors, then it would be ideal to give him the benefit of the doubt.

“And with many already seeing a doomsday scenario, we will prefer to go with notable economist Bismark Rewane who is insisting that there is nothing wrong with borrowing as long as it is tied to projects that will impact the people,” he said.

Akinsiju added: “Just in case many are not aware, external borrowing is an integral part of the financial plan for the current budget, so as it stands, the country is committed to doing what is necessary to bridge the country’s infrastructural deficit.

“The Presidency is indeed going to send details of the borrowing plan to the National Assembly to enable members to have a clearer insight into the President’s intention. We believe this will clear all doubts in the minds of critics when it is eventually unveiled, but suffice it to say that the $29.billion loan is absolutely necessary.”

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