09 October 2016, Lagos — After an array of troubling economic data, worsened by a slide into recession, the $1 billion loan advancement to the Federal Government by the African Development Bank (AfDB) to help the country shore up its 2016 budget shortfalls should ordinarily be a great lifeline for government and the economy in particular.
There’s no gainsaying the fact that Nigeria’s economic woes had been compounded by the drastic and dramatic fall in the price of crude oil, debilitating effect of militancy in the oil-rich Niger Delta region and the resultant contraction of revenues to government, which translated to negative GDP growth rate, high unemployment rate, among others.
Worse still, the tight monetary policy regime which has kept lending rates by commercial banks much higher and the current foreign exchange crisis amid rising national debt portfolio, AfDB’s loan at a concessionary interest rate of 1.2 percent for Nigeria to address the 2016 budget deficit and aid her economic recovery couldn’t have come at a better time.
The AfDB President, Dr. Akinwunmi Adesina, had after a meeting with Vice President Yemi Osinbajo, where modalities for the loans were discussed explained that
the financial package included; $1 billion budget support, $300 million to help government initiate projects that would boost job creation for 185,000 youths.
Others are $250 million towards infrastructure development in the North-East, $1 million grant to deal with challenges of Internally Displaced Persons, $300 million for infrastructure development around Abuja, and $200 million for the Transmission Company of Nigeria to improve its facilities, among others.
Altogether the AfDB is expected to provide $4.1 billion in loan credit facilities to the country by 2017 and increase the lending to $10 billion by 2019, according to Adesina.
Acknowledging the dire situation the country has found itself, the AfDB boss said: “I think the times are difficult but I want to commend the government for being bold in taking the right decisions. I think that the fact that the price of crude oil has gone down is a big challenge because you have 98 percent external forex revenue coming from the sector.
“So, it has created calibrations; I’m not going to go into the details of all the problems, but what is important is what we are going to do about it.
“I’m not here to lecture the Nigerian government. I’m here to support very strongly. We have said that we are going to support the Nigerian government with the budget support to be able to deal with some of the fiscal imbalances that they have. We are looking to consider for an award of $1billion to help to deal with that particular deficit.”
Adesina further buttressed the importance of financing the power sector at this critical time.
According to him, “We also recognise that power is perhaps the most important challenge that is driving inflation in the country. So, we expect in our portfolio this year to invest in a total of 1,400 megawatts of power to focus on the energy sector; and by 2017, we plan to add 1,387 megawatts to the sector.”
Meanwhile, experts, who spoke with THISDAY welcomed the AfDB intervention at a concessionary rate in view of the country’s weak balance sheet. They argued that it would have been worrisome if the loan had come from the International Monetary Fund (IMF) or the World Bank because it would have required certain tough conditions.
Nevertheless, they believed getting the money is one thing while utilising it for capital projects alone without any form of diversion is another thing, given government’s attitude to previous borrowings.
In the past, governments have used borrowed funds meant for development projects to fund elections and embezzled them outrightly.
Economist and former acting Unity Bank Managing Director, Mr. Muhammed Rislanudenn, said, “there’s no alternative to borrowing and spending ourselves out of this recession provided we are careful in optimal utilisation of the resources for investment only and not consumption. More so, it is a more plausible option than an asset sale.”
According to him, “It’s a double-edged sword. AfDB’s intervention is highly commendable because given our weak balance sheet, any loan from IMF or world Bank today will come with stringent conditionalities. Recall that N1.8 trillion out of N6.06 trillion 2016 fiscal budget was expected to be spent on capital expenditure projects specifically geared towards pushing the economy away from stagflation and potential recession at that time.
“Indeed N2.2 trillion of the said budget was to be deficit financed. It is now history. Lack of funding for the budget has in part, led the economy to further contract for two consecutive quarters of 2016, leading to full recession. Meanwhile, our GDP in dollar terms has shrunk by almost 50 percent. With income erosion from oil, non-resolution of sabotage activities in Niger Delta, there is no alternative to borrowing and spending ourselves out of this recession provided we are careful in optimal utilisation of the resources for investment only and not consumption. More so, it is a more plausible option than an asset sale.
“Debt management office should also carefully manage the purpose as well as the threshold for borrowing, not to exceed maximum 15 percent Debt to GDP ratio and ensure we don’t end up overburdening future generations with unsustainable debts. However, spending alone will only support sustainable growth if properly complemented with synchronised monetary and trade policies that seek to complement rather than contradict each other.”
Also, Associate Professor of Finance and Head, Banking & Finance, Department, Nasarawa State University, Keffi, Dr. Uche Uwaleke said, “It is indeed some good news for Nigeria and a welcome development for a country like Nigeria that is in dire need of avenues to augment the major revenue stream, which comes from oil. The AfDB is a multilateral organisation and as such its credit facilities are concessional in nature. I would have had cause to worry if it were an IMF facility or one coming from the Paris or London club reputed for imposing very strict conditionalities on beneficiaries.”
According to him, “It is a fact that concessional loans from multilateral institutions like the World Bank and AfDB do not represent sources of vulnerabilities to a country such as Nigeria where less than 20 percent of total debt stock is foreign loans. The present challenge with the country’s debt profile of about N16 trillion (or roughly USD 61 billion) as at June 2016 is that it is composed mainly of domestic debts (as a matter of fact over 80 per cent) which are costly to service. On the contrary, concessional sources come as cheap as 1.25 per cent on the average with average tenors that are as long as 40 years. According to the DMO, Nigeria’s external debt to GDP ratio is less than 3 percent compared to the international threshold of 40 percent for countries in the same peer group.
“So, Nigerians should view the offer by the AfDB from a perspective of little or no risk. The good news is that any loan from the bank will be project-tied especially to employment-generating activities such as infrastructure, power and agriculture. So, it is not for consumption purposes. Currently at the helm of affairs at AfDB is Nigeria’s Adewunmi Adeshina. The country will be well advised to leverage the opportunity. The huge infrastructural gap in the country cannot be met from a weak domestic revenue base. Foreign loans especially from concessional windows will no doubt fast-track the process.”
As it appears, though Nigerians praise the AfDB’s intervention at this critical stage of the economy, they are more interested in ensuring that the monies are judiciously utilised on projects that benefits the people and get the country out of recession, quickly.
*James Emejo – Thisday