Nwankwo: We Resorted to Foreign Loans to Free Funds for Domestic Economy

By Ndubuisi Francis in Abuja    

The Director General, Debt Management Office (DMO), Dr. Abraham Nwankwo, has provided further insight into the federal government’s $29.96 billion borrowing plan, saying the decision to take foreign loans is a strategic plan to free funds for domestic borrowing and drive down the cost of funds in the process.

The external borrowing option was equally taken because of the concessionary window offered by foreign lenders, he said.

Nwankwo also disclosed that in seeking the loans, the DMO had carried out a comprehensive Debt Sustainability Analysis (DSA) and factored in Nigeria’s ability to service the debt as well as existing ones.

President Muhammadu Buhari had recently presented the proposed $29.96 billion External Borrowing (Rolling) Plan 2016-2018 to the National Assembly for approval, but the Senate declined approval, predicating its action on the absence of detailed information on the loans from the executive arm of government.

Contrary to the views in some quarters that the country was about to be plunged into another web of borrowing, the DMO chief executive, in an interview at the weekend, noted that for about 10 years after it exited the London and Paris club of creditors between 2005 and 2006, Nigeria has consistently borrowed on an annual basis.

He stated that while the nation’s total debt stock at the end of June 2016 was N16 trillion, which is 12.24 per cent of GDP, “we will continue to emphasise that relative to our GDP, we are very comfortable”.

“But we also accept that we have a challenge with our domestic debt service because of the high cost of funds domestically, which is one of the reasons why if we must borrow (as we must borrow), it is necessary for us to see how much we can conveniently borrow from external sources since that will help reduce the domestic cost of funds.

“This is because when the demand from the domestic market by government drops, it means whatever resources are available are there for the private sector and because the demand pressure is lower, the cost will be lower too,” he said.

Further justifying the $29.96 billion borrowing plan, he said: “The first thing to note is that this borrowing is normal; normal in the sense that over the past 20 years, there is no year we have not borrowed. I am not aware of any year in the past 20 years that Nigeria has not borrowed.

“So interpreting the proposal submitted to the National Assembly by Mr. President for a three-year borrowing programme to be an indirect way of trapping the country does not seem to be logical because Nigeria has always borrowed every year.

“Every year, there is a budget and if you check the budgets many years back, you will see that we have been borrowing both externally and domestically.

“So there is nothing new about this. Let me also emphasise that since we exited from the Paris and London Club debts in 2005-2006, we have always borrowed almost from all these sources we want to borrow from now.

“It was the Chinese loan that financed NIGCOMSAT more than seven years ago. This is to show that Nigeria has always been borrowing on an annual basis; so it is usual.

“The medium-term external borrowing programme is also not new. I am sure that by next year, it will be re-presented because 2016 would have been exhausted completely and a new rolling plan will come in. That’s why it is called a rolling programme.

“It is part and parcel of the total fiscal framework, because fiscal framework includes the Medium Term Expenditure Framework, which explains how you will fund expenditure over the medium term, and one of the items for funding expenditure over the medium term would be the financing item which is borrowing and that has always been there.

“This is to confirm to you that there is nothing especially new about this borrowing proposal which Mr. President has placed before the National Assembly. It’s the normal procedure for funding the development of the country.”

Reminded that previous borrowings might not have been channelled into targeted projects to generate maximum benefits to the country, using NIGCOMSAT as a case study, Nwankwo noted that while some resources were not efficiently, transparently and accountably used in the past, it was the duty of all Nigerians to demand explanations from the relevant agencies of government.

But he pointed out that the many loans sourced in the past had also been efficiently applied into verifiable projects, citing some of them as the expansion of the Abuja Airport road, Abuja-Kubwa-Kaduna road, remodelling of airports, and the resuscitation of rail lines across the country, among others.

“You are aware, for example, that the Nigerian airports are being remodelled, new terminals are being built in almost all parts of the country. These are being done with borrowed money, over the past four or five years.

“The Abuja Airport road was expanded from four lanes to 10 lanes, same with Abuja-Kubwa-Kaduna road. These two projects were actually funded with money borrowed domestically.

“You are aware that the Nigerian rail lines are being resuscitated with new locomotives purchased, and the Lagos-Ibadan-Kano rail line has been fully resuscitated.

“These were done with external borrowing. These are some of the examples and on routine basis and on a permanent basis, you are aware of the various agriculture projects, some mainly funded by the World Bank and some of them in some areas are called FADAMA and some of them still exist in all parts of the country.

“All those projects were funded with borrowed money. You are aware of the polio eradication programmes. Those were funded with borrowed money from the International Development Agency (IDA) in particular. That is the concessional window of the World Bank.

“You are aware of the various rural water supply schemes. These are funded with money borrowed from the multilateral sources. So these are some of the major popular projects that we have said. But in general, all the monies borrowed from external sources are projects-tied,” he said.

Nwankwo observed that the beauty of World Bank facilities is that the multilateral institution does not give loans without supervision.

“You are aware that the World Bank cannot give you a loan without supervising it themselves; that is the system. They must supervise it themselves and they must have people working with the Nigerian team to monitor the projects from the beginning to the end, so they don’t just disburse the money and walk away.

“They disburse the money as the work progresses. So even when Nigeria seeks for a loan and it is approved, the disbursement of the loan is done according to the schedule of the work itself,” he said.

He noted that when there might have been cases of misapplication of resources in the past,  “it is also appropriate to recognise that we have an opportunity that is very different”.

Nwankwo explained: “We have a government, a president whose administration is founded on transparency, accountability and anti-corruption, which means we have a greater chance and we should have more confidence that resources, revenues as well as loan proceeds will be more efficiently and accountably applied and will not be siphoned through corruption.

“Having said that, we will make sure that all the various apparatus available for monitoring, for making sure that resources are well used, will be put in place. We cannot afford to experience wastage this time around.

“So the government agrees with the Nigerian people that we cannot afford to continue wasting resource.”

In response to a question on why there seems to be a lopsided allocation of projects, for which the current loans are being sought, he said every state knows the normal procedure to follow.

“States have always borrowed externally so they know the process. For example, if you want to borrow from the World Bank for agriculture, you will approach the World Bank’s local office in Nigeria to know what kinds of loans they have for agriculture or for water supply or for health, and based on those preliminary discussions, the state will relate with the International Economic Relations Department of the Ministry of Finance and based on the guidelines of both the World Bank as lender and the International Economic Relations Department, which is the federal government agency, they begin to articulate and aggregate these things.

“It is demand-driven. All I can say about that is if there are states or regions that believe that they have been excluded, what we should do is find out from them whether they submitted proposals to both the creditors as well as to the International Economic Relations Department of the Ministry of Finance and if those proposals were not considered, because even if you make a proposal and it was not considered between you and the people evaluating your proposal, you would have agreed on what is appropriate and what is not.

“So you should find out whether there are states that submitted proposals and were left out. DMO is not responsible for receiving those proposals so it would be nice to find out from the states whether there is a discrepancy between what was submitted and what was put forward,” he said.

On the ability of Nigeria to service its debts, he said the country’s public debt service management was among the most respected in the world.

“I assure you that the proposal which Mr. President has put before the National Assembly for external borrowing has taken into account Nigeria’s ability to service the debt, and taken into account that these external borrowings are at very affordable interest rates.

“Most of them are below 3 per cent per annum and all of them range between 15 and 30 years in tenure and their moratoriums range between five and seven years. So those loans are at relatively concessional terms.

“Talking of debt service, one of the reasons it tilts to external borrowing is because compared to domestic borrowing, they are much cheaper — at least 7 per cent cheaper than domestic borrowing, which means when you look at their tenor and the interest rate, it means that their impact on debt service will be minimal per annum.

“So foreign loans are even more serviceable. If you borrow the same amount from domestic sources, you will find out that the impact of the domestic loans will be at least three times higher than the impact of the external ones.

“In terms of debt servicing, remember that sometime in August, the DMO presented through the Minister of Finance to the Federal Executive Council, the debt management strategy, which proposed that in the medium to long-term, the mix between our domestic and external debt should be changed from the current mix of 82 per cent domestic and 18 per cent external; that in the medium term.

“So the government needs to mix it to about 40 per cent external and 60 per cent domestic and that was approved. It’s a strategy that Nigeria has adopted and so the medium-term external borrowing programme is working in the context of that recommendation.

“Essentially, it is consistent with the programme, which we have accepted as the appropriate strategy to follow in the medium term,” he stated.