When not to contract external loans


President Muhammadu Buhari has requested legislative approval to buy two pigs in a poke by way of external loans whose terms and conditions would only be known at the point of collection. A sovereign people should not be burdened with loans which they would repay in such a manner more so because the country possesses the wherewithal to raise the finances being sought.

One of the requested loans involves $3.0 billion for refinancing of maturing so-called domestic debts. This newspaper has in previous comments on this matter categorically demanded that this loan request be rejected. To wit, the plan to substitute an international commercial dollar loan that attracts 7 per cent interest for a false treasury bill naira debt raised profligately at 13-17 per cent is a first step toward re-enacting the pre-2000 London/Paris Club external debts that were extinguished at great cost in 2006. It is unacceptable. Instructively, this newspaper in its editorial of 23/10/17 showed that, at no extra cost to the national treasury, proper implementation of the annual budget would push down treasury bill interest rates to 4 per cent or lower. Government should adopt this option.


However, diehard proponents of this loan face a major hurdle. Because to refinance part of the domestic “debt” (which is duly denominated in the national currency) in an alien currency is an attempt to legitimate and legalise multiple currency practices, the request would only qualify for consideration in a dutiful and uncompromised legislature after Buhari should have secured appropriate amendments of both the 1999 Constitution and the CBN Act 2007 which recognise only the naira, But in the unlikely event that the amendments are passed, would the CBN and the U.S. Federal Reserve Bank constitute a currency board to manage the monetary matters of the newborn ‘‘banana republic’’ called Nigeria? Government should always think through the implications of its proposals.

In any case, the Buhari administration should have taken time to understand the content of the debt that it seeks to refinance. The so-called national domestic debt arose from issuance of treasury bills for the purpose of withdrawing excess liquidity funds from the system. On the contrary, best practice issuance of treasury bills (where there is revenue shortfall) obtains from subscribers’ funds, which enable government to augment available revenue for the implementation of the approved budget. Rather oddly, beginning in 2003 or thereabout, the withdrawn excess liquidity funds were sterilised in the vaults of the apex bank. What happened may be properly likened to excess corn harvest that was dried and stored in the barn or silo. Thereafter the excess liquidity treasury bills were rolled over, restructured and eventually classified under FGN Bonds, Nigerian Treasury Bills and Nigerian Treasury Bonds. While only 0.02 per cent of the National Domestic Debt (N12.03 trillion as at 30/6/17) falls under FGN Savings Bonds, the total amount (being harvested corn kept in the barn as it were) remains unspent (not yet consumed). Thus commonsensically, the sterilised funds offer the FG the leeway to implement the 2017 budget by simply de-sterilising just a small fraction of what indeed is untouched. The history of the so-called national domestic debt is fresh with all elected members of the National Assembly since 1999 as living witnesses. Therefore, the NASS should thoroughly scrutinize this false debt, rename it National Sterilised Funds Mountain and freeze further transaction on it. In its place, a genuine national domestic debt as provided for under Section 29 of the CBN Act 2007 should be floated and cumulated as explained in our editorial of 23/10/17.


So, by directing the CBN to adopt proper management of the country’s forex earnings as central banks of successful economies do, Nigeria would transform from a beggarly loan seeker to a thriving economy and become, if need be, a lender/donor country. Disappointingly, the Ministry of Budget and National Planning abdicatively toes the CBN’s ways when it stated falsely in the Economic Recovery and Growth Plan document and in the 2018-20 Medium Term Expenditure Framework and Fiscal Strategy Paper that about 90 per cent of Nigeria’s foreign exchange originated from oil revenues. A dutiful MBNP does not require to be lectured that under best practice single forex market and an operative sovereign conditionality that ensures that forex holdings of non-government entities and persons are converted without fail to naira sums within a set short time frame, the sum total of private sector export earnings including forex in domiciliary accounts plus remittances from abroad that top $22 billion annually plus foreign direct investments (excluding portfolio investment which is a forex drainer or a sucker element) plus 40 per cent oil sector expenditure which oil majors are required to fund using imported forex plus forex brought in by tourists, etc, surely far surpasses 10 per cent of the country’s forex earnings. The CBN, in its approach, wishes away the above indicated forex inflows. The MBNP should not merely make baseless projections as at present, it should among other responsibilities take account of the country’s total public and private sector forex earnings to the last dollar and allocate same priorities-wise to the last unit of needed imported goods and services in pursuit solely of national prosperity. Such an exercise will at all times show a dollar-surplus Nigerian economy with ample government revenue.

In the circumstances, the Buhari administration’s penchant for loans is a search for excuse to hang its inability to fix the economy on any denied loan request, which is buttressed by a visible desire to take turns to loot the treasury in collusion with givers of approved loans as transpired under its predecessors. It is depressing to note that amid the request for loans, from trickles of information available to the public, government has its disposal (i) well over $2.5 billion in the excess crude account; (ii) more funds in the TSA (it stood at over ₦5.2 trillion last April) at any point in time than corresponding commitments; (iii) over $34 billion in external reserves (under best practice there is nothing like CBN’s external reserves) ; (iv) unspent recovered looted funds; (v) at least $20 billion in private domiciliary forex accounts that is overdue for conversion to the national currency; (vi) monthly FAAC allocations plus proportionate sum of the allowable fiscal deficit of 3 per cent of GDP exceed ₦700 billion whereas the Veep recently lamented that the amount could not be raised for monthly public financial requirements; and (vii) 50 per cent Paris Club refund sits pretty in the kitty. In addition, government should realise that the economy-undermining naira-depreciating exchange rate differential contained in the MTEF/FSP is far less than the willfully overlooked domestic production-protecting forex access tax (FAT) that is being condonably leaked to interlopers. So, why should Buhari borrow?


Well. Buhari made a second loan request amounting to $2.5 billion for the financing of the deficit and capital projects in the 2017 budget. China is generally regarded as the source of the loan. The terms and conditions of this multi-project loan should be made public. Flowing from the preceding discussion, the aspect dealing with the fiscal deficit is certainly de trop and well within the country’s resources. Also it reeks of bad faith to put a key infrastructure project in the core oil and gas producing area under an external loan. The Bodo-Bonny Road project should not be delayed on account of possible clash of financial and operational culture considering the constituents of NLNG involved in the project. The country possesses the forex muscle and local resources to shoulder its part of the bargain.

As regards the Mambilla Hydropower Project, the second runway at Abuja airport and counterpart funding of rail projects, it is obvious that the loan sum is deliberately understated. The hydropower aspect alone is said to cost as high as $5.72 billion. These projects are expected to be executed under Chinese import-export part financing arrangements. The intention to use exclusively Chinese companies, sub-contractors, equipment and workers (that would be mainly prisoners or technically slave labour) sullies the attraction of these projects. Technological and skills transfer to the country through local participation in all aspects of the projects should not be sacrificed. For this reason, all counterpart funding of such infrastructure projects should be in naira to take care of expenses incurred in the country. Therefore, the true cost, term and conditions, maintenance clauses and complete project transfer time line of these projects should be negotiated and explicitly stated. Otherwise, going by the earlier discussion, government should finance the projects.


At this juncture, it should be recalled that the double-dealing World Bank/IMF fleeced Nigeria bare via the erstwhile London/Paris Club to initiate the mechanism responsible for the fake national domestic debt (FNDD). To the greatest joy of the World Bank/IMF, the FNDD now eats up over 40 per cent of government revenue. But the FNND also created conditions for Chinese financing arrangements to be dangled all over the place to the discomfiture of Western countries. Doubtless, the ill-disposition of World Bank/IMF to the inroad being made by China informs their advice that the country should beware of the exchange rate risk by ending further borrowing. That is not enough because most Nigerians knew a long time ago that the country could/can do without borrowing. Therefore, the Bretton Woods institutions should go straightforward and eat crow by actively dismantling the anti-Nigeria schemes and levelling the National Sterilised Funds Mountain orchestrated by them.

Thereupon, Nigeria will race at full speed on the expressway to sustainable rapid development and growth.