HomeWorld NewsNigeria NewsADEOSUN: To borrow or not, the red flags fly

ADEOSUN: To borrow or not, the red flags fly

By Emeka Anaeto, Business Editor
Nigeria’s foreign borrowings faced some theatricals during the week as the Finance Minister, Mrs. Kemi Adeosun, recanted on the strategic direction. Speaking through theDirector of Information, Federal Ministry of Finance, Mr. Salisu Na’Inna Dambatta, yesterday, said Nigeria would continue to borrow (both domestic and foreign) adding that nothing has changed to dictate otherwise.

ADEOSUN: To borrow or not, the red flags fly

Acting President Yemi Osinbajo, New NSIA Chairman, Mr Jide Zeithin accompanied by Minister of Finance, Mrs Kemi Adeosun during the Inauguration of Board of Nigerian Sovereign Investment Authority (NSIA) at the State House in Abuja. (File Photo)

That was barely 24 hours after Mrs Adeosun was quoted to have stated at a business forum in Abuja:  ‘‘We cannot borrow anymore.  We just have to generate funds domestically enough to fund our budget; mobilize revenue to fund the necessary budget increase.”

Notably, months earlier Adeosun had enunciated the borrowing plans indicating that the government was relying heavily on borrowings (external inclusive) to fund the 2017 budget just as it was already doing for 2016 fiscal year. Thus the range of policy summersault or inconsistency became clearly thrice between borrowing or no-borrowing in just this year or this week.

A borrowing plan or policy (especially external borrowing) is no flash in the pan. It is not a quick fix or knee-jerk decision. For any nation it is a strategic plan, most times medium to long term.

The issue here is not even whether Nigeria’s fiscal authorities have such a plan, strategy or policy. Certainly an elaborate one is in place two-fold; first, the well-articulated medium term (3 years) borrowing plan 2016-2019 and another one as encapsulated in the Economic Recovery and Growth Plan (ERGP), another medium term plan rolled out this year. Indeed, a third leg could be seen in the Medium Term Expenditure Framework (MTEF) 2017-2019.

A snap shot of reactions to Adeosun’s statements at the Abuja business forum mid-week was more of positive surprises in the social media. In other words, not a few people applauded the decision to be more inward looking in fiscal funding.

However, yesterday’s reversal of position would appear the most a let-down, not really that the borrowing plans or actual borrowing was wrong, but more of concerns for policy integrity. One would have expected the ministry’s statement to deny the reported withdrawal from external borrowing before laying emphasis on why the government should continue to borrow. If anything, the statement yesterday could worsen perception index for Nigeria’s foreign investment credentials.

We are aware how strident Nigeria’s quest for the World Bank loan of USD2.0 billion since last year. We are also aware of the weak links established by the team of both the World Bank and the International Monetary Fund (IMF) last year on the fiscal and monetary profile of Nigeria that needed to be straightened before any such loan could be accessed. We had expected the minister to either concentrate on working on those weak links, especially on the issue of revenue leakages and cost of running government, or totally back-out and redirect energies on domestic borrowings, deepening the domestic bond market while working on the established fiscal and monetary policy weak links.

Sources in the fiscal authorities have, however, indicated that political exigencies may have forced Adeosun on auto-reverse.

But now we are faced with a hazy policy position on the country’s borrowing plan it may have become imperative to review the plan itself along with all the assumptions which may have gone stale or overtaken by events since this year.

According to the Debt Management Office, DMO, the nation’s indebtedness to creditors – local and foreign – has hit N19.2 trillion by end of March 2017, indicating that additional N1.8 trillion was borrowed just in the first quarter 2017, as it closed the 2016 at N17.4 trillion. This brings total borrowing by the present administration to about N8.0 trillion already, and the figure is still on the rise quarterly. By end of this year total debt stock is estimated to hit N23 trillion.

Earlier in May, the International Monetary Fund, IMF, projected that the nation’s indebtedness would hit 24.1 per cent of the Gross Domestic Product, GDP, by 2018, adding that by 2017, the nation’s debt profile would have reached 23 .3 per cent of the GDP.

Similarly, the World Bank had also expressed reservations over Nigeria’s debt servicing to revenue ratio, saying that declined earnings might render the country’s debts unsustainable.

By the IMF’s projection of 24 .1 per cent, Nigeria’s debt to GDP would have skyrocketed by 100 percent in 2018.

Even the DMO has admitted in its Debt Sustainability Analysis (DSA) that despite the theoretical head-room for more borrowings going by global standard of debt-to-GDP ratio, Nigeria’s borrowings may actually be in the danger zone, no thanks to the macroeconomic headwinds, the recessionary economy.

The results of the 2016 DMO’s DSA showed that for the first time since Nigeria’s exit from the Paris and London clubs of creditors in 2005 and 2006, Nigeria’s debt position experienced some deterioration and slipped from a Low-risk of debt distress to a Medium risk of debt distress. The DMO had stated: ‘‘Although the level of debt stock is still appreciably low relative to the country’s aggregate output (GDP), the debt portfolio remains mostly vulnerable to the various shocks associated with revenue, exports and substantial currency devaluation.’’

This meant that, as in the previous DSA, while the GDP-related indicators appear normal, as they remained below their respective thresholds, the revenue-based indicators were mostly sensitive to the revenue shocks.

With these in mind we call for caution as Adeosun is tossed forth and back on more foreign borrowings.

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