Following the announcement by the Honourable Minister of Finance that government has negotiated some overseas Development Association Loans for the provision of urgently required social-economic infrastructure; some questions were raised regarding the advisability of such a move in the light of recent national experience in this regard.

It is a fact that opinion remains divided amongst the community of informed commentators regarding the justification of the recently announced debt relief. A relief, which it is argued, would see the national treasury depleted to the tune of $12 billion to get a relief of $18 billion, [but] considering the fact that the country has over the years paid back well in excess of the principal amount borrowed, [is a relief] not worth celebrating. In fact, some argued vehemently that the celebration of the relief was premature as negotiations were yet to be concluded.

Having lived with the debt overhang since the late 1980s, […] I recall […] as a young manager at UBA Plc the bank [hosting] an international seminar to crystalise a consensus on the solution to the debt peonage to which the country had ill-advisedly gotten itself into, and having seen the problem fester till recently with all the investment in man-hours to undertake various negotiations for a relief, I did not have any doubts in my mind that the relief announced was a momentous development. In reaction I did a paper titled, “Debt Relief at Last” and immediately followed that up with a rejoinder as I could not relate with some of the opinions being canvassed on the debt relief in the popular press. After that, I thought I have had my say and would then keep my peace until Ladi-Akeredolu-ale of Channels television invited me to discuss on the station’s flagship programme, “News at Ten,” the fact that the nation has resumed external borrowing again. This article is prompted by the fact that [on] a live programme [there is a] maximum of fifteen minutes [of discussion], [so] there is precious little you can get across and even then you are very much at the mercy of the presenter particularly his orientation on the issue.

There is no country in the whole world that does not enjoy one form or another of indebtedness. Similarly, there is no operating company that does not enjoy one form of debt or another. In fact as it is quite clear at the level of the individual; the ability to borrow is a measure of capacity. The relief which has been extended to the country has the automatic effect of enhancing the country’s creditworthiness which means that the country is therefore in a position to access credit on relatively more favourable terms. And considering the urgent need for this country to improve on the quality of life [for the general] population; a quality of life which on all accounts has deteriorated as evidenced by recent figures released by the United Nations Development Programme – to the effect that life expectancy in the country is now at 43.4 years down from 51.6 years and the Human Development Index at 157 down from 151 out of 177 countries investigated – there is an urgent and crying need to upgrade, particularly the available social infrastructure in the country. The country should therefore be open to any loans of a concessional nature; that is of 30 to 40 years duration with a moratorium of around 10 years and low or no interest charges, except commitment fees invariably of below one per cent. We should be concerned rightly that we do not get back to the situation we are struggling to extricate ourselves from and that would constitute the thrust of the remaining part of this piece.

It is necessary to put this discussion in its true context, by considering the various reasons why government borrows. There is borrowing for the provision of social infrastructure, that is, education, health, roads, transportation, water, power supply, etc. Expenditure in this area is often ongoing. There is always the need for maintenance and upgrading and ideally the credit for this area of expenditure is concessionary. There is the loan that is project tied and where appropriate feasibility studies have been made such projects are usually self liquidating and therefore growth inducing without creating any repayment problems. There is also suppliers/buyers credit for which the supplier would give a period of up to 90 days for payment to be made. A business or project that refuses to accept this provision relatively increases its cost of doing business. Balance of Payments Support lending is often the one that is problematic. This is likened to borrowing for consumption and this loan category is very prone to abuse and should not be touched by the country in the future with even a ten-foot long pole.

The problem the country had with her debt in the past was due to the fact that borrowing was not regulated or controlled. Loans of doubtful viability were negotiated often for political exigencies and often because those in a position to negotiate the loans were self-serving. The loans were booked for the purposes of lining the pockets and fattening the bank accounts of the officials concerned. This situation meant that the interest of the country was not of paramount consideration [and] resulted in the contracting of loans which are generally regarded as odious. The interest rates were floating and the loans were often not project-tied. Even where such loans were project-tied, nobody executed such projects as there was no monitoring agency. Pervasive macro-economic instability also contributed in no small measure in worsening the debt situation. If we recall during the Structural Adjustment Programme of the Ibrahim Babangida era when the rate of exchange suddenly depreciated almost overnight from N22 to the dollar to N86, all the projects that had foreign exchange content were immediately rendered unviable, particularly projects under such agencies as the National Economic Reconstruction Fund. The creditors were also not professional in the way and manner the debts were granted. Funding was pushed as a basis for securing commitment and to help recycle the ballooning petro-dollar accounts of OPEC producers.

So what is the way forward? We have attempted an isolation of the practices that got us as a nation into the debt peonage in the first place. And as the saying goes “accurate identification of a problem is half the effort on the way to its solution”. The first thing is that since we have taken a decision to allow the private sector to play a dominant role in economic affairs going forward, government should avoid as much as possible all economic projects. Though I still believe that for instance, in the interim, government should establish a mini-refinery to help solve the problem fuel importation has caused to this country, until the environment is stable enough to attract private investors. The Debt Management Office (DMO) should be accorded its due responsibility in the advising and monitoring of future loan commitments.

And to ensure that we end the era of uncontrolled borrowing, all debt to be incurred must be accommodated in the budget and receive due approval. The recent stakeholder consultations held by the budget office during which a three year expenditure programme was canvassed is a movement in the right direction. As we have argued elsewhere, we should go a step further to situate the expenditure programme in the context of specific national goals and objectives. There would be the need for the formulation of a three-year rolling plan like we attempted in the past. The advantage in adopting a medium-term perspective is that projects that have a gestation period of more than one fiscal year are therefore not forgotten. Above all, there is an urgent need to approve the Fiscal Responsibility Bill to ensure that all the tiers of government in the country do not have a choice but to implement budgets as approved and keep to agreed detailed guidelines regarding the booking of debts in the future. Whatever be the case, we remain optimistic that it can no longer be business as usual regarding the booking of future debts. But it would be tantamount to shortchanging ourselves should we decide not to take loans again. We should learn from our past experience by ensuring that we no longer take loans in an unregulated or uncontrolled manner. We believe that the environment is no longer conducive and all that abuse is now in the past.

Dr. Chizea, Principal Consultant, BIC Consultancy Services, Lagos.

Boniface Chizea, This Day (Lagos), September 27, 2005