The Odds Against Buhari’s $30 Billion Loan

President Muhammadu Buhari

President Muhammadu Buhari

President Muhammadu Buhari’s quest to secure about N9.12 trillion foreign loans, required by his administration for infrastructural development, to get the country out of recession may surfer a setback due to political rivalry and failure of the government to gain the confidence of the people

 

The feeling within the Presidential Villa last week was not particularly a pleasant one. Not with the tough stance of the Senate on their approval, sought by President Muhammadu Buhari to obtain a $29.96 billion external loan. The request was dead on arrival as the Senate did not even debate it after it was mentioned as executive communication by Ali Ndume, Senate Leader, on the grounds that it did not contain a borrowing plan or details of the projects to be funded with the loan.

The situation was not better at the House of Representatives where the South-east caucus of the House, obviously worried about marginalization of their geo-political zone also insisted on a detailed outline of the projects the government intends to execute with the foreign loan. Not long after the President sent letters to the Senate and to the House of Representatives, seeking their approval, the Federal Ministry of Finance, headed by Kemi Adeosun came up with sketchy details on the loan, which the government says is designed to address infrastructure deficit in the country. The borrowing has a three year-plan covering proposed projects for 2016 – 2018.

The Finance Ministry explained that the borrowings are highly concessional (non-commercial), with low interest rates and long tenor. It also said the funding is being sought from multilateral institutions including the World Bank, Africa Development Bank, AfDB, Islamic Development Bank, IDB, Japan International Co-operation Agency, JICA, and China EximBank.
Besides, the ministry also explained that the planned Eurobond issuance in the international capital markets is the only commercial source of funding.

MTN

In a letter to the National Assembly, President Buhari stated that projects, for which the loan is being sought, cut across sectors of the economy – agriculture, health, education, and water supply. The emphasis is on infrastructure development as a means of lifting the country out of recession.

Buhari explained therefore, that “Considering the huge infrastructural deficit currently being experienced in the country and the enormous financial resources required to fill the gap in the face of dwindling resources and the inability of our annual budget to bridge the infrastructure deficit, it has become necessary to resort to prudent external borrowing to bridge the financial gap which will largely be applied to key infrastructure projects namely power, railway and road project amongst others.” He gave a breakdown of the figures, indicating that the $29.96 billion is made up of proposed projects and programmes loans of $11.274 billion, special national infrastructure projects of $10.686 billion, Eurobonds of $4.5 billion and Federal Government budget support of $3.5 billion. Yet, that explanation sounded grossly inadequate for the federal lawmakers to rely on. There is suspicion that a political mischief is in the making by the presidency.

There have been in recent times, interventions by well meaning Nigerians, suggesting that the Buhari administration has an ineffective economic management team, and an information management team that is not particularly vibrant. The intrigues surrounding the loan are largely driven by political interest. The magazine gathered that beside, the high level politicking many people who should have enough information about the loan, are yet to understand the details as only the presidency knows the projects that will be executed with the loan.

But Abraham Nwankwo, director general, Debt Management Office, DMO, while stressing the need to tackle infrastructure challenges in the country, said that “In this kind of economic situation, if you deal with infrastructure problem, the cost of power will be lower, the cost of transportation will be lower, and the cost of most other services will be lower.”

Like Adeosun, Nwankwo explained that one of the features of the proposed loan is the low concessionary nature of the interest rate, which is fixed at 1.5 per cent. This arrangement, he said, differs from loan arrangements under previous administrations with the Paris Club of creditors, which came with floating interest rates as high as 18 per cent.

Among others, the facility is expected to revive infrastructure like railways which will lessen the burden of movement of heavy goods across the country. It is also expected that this will bring down the consumer price index and the rate of inflation. According to the DMO boss, this will be followed by the Central Bank of Nigeria, CBN, setting the monetary policy rate low, “because all over the world, the central bank knows it has to put the monetary policy rate high enough to catch up with inflation rate, otherwise we will be talking of negative real rate of interest which destroys the economy. If inflation comes down, the monetary policy rate will be lower and this will translate to a lower lending rate. That is the sequence.” Although the spending of the almost $30 billion will span a period of three years, the repayment period is between 20 and 30 years.

But despite these explanations, opposition still mounts even though analysts predict that the resistance will last just for a while…

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