Worry, Outrage Still Over Nigeria Rising Debt Profile

THE exact figure is shrouded in mystery. It hovers between $42 billion and $46 billion and it is said to comprise  $6 billion external debt and about $40 billion domestic debt.

To arrive at a definite figure, the Federal Government through the Debt Management Office (DMO) is compiling the nation’s debts. The final report may be made public before the end of the year or in the first quarter of 2013.

The rising debt has become a source of unrelenting worry and outrage for Nigerians.

According to experts including a former bank managing director who spoke with The Guardian yesterday, the rising local debt is one of the factors responsible for the dwindling state of the nation’s economy and increasing unemployment.

Besides, civil society groups, state houses of assembly and indigenes   have been advised to monitor closely the execution of projects for which 17 state governments have secured about N1.2 trillion bonds from the capital market in the last six years.

While briefing the House of Representatives    on the 2013-2015 Medium Term Expenditure Framework and Fiscal Strategy (MTEFF) recently, the Director-General of DMO, Abraham Nwankwo put Nigeria’s total debt profile at $45 billion.

He said: “For 2012, Nigeria’s external debt is projected at $9,021.53 million; 2013, $12,165.10 million; 2014, $14,585 million and 2015, $16,765 million,” adding that “a breakdown for domestic debt is projected at 2012 - $6,483.81 million; 2013 - $7,125.93 million; 2014 - $7,792.41 million and 2015 - $8,444.86 million.”

The former Managing Director of the defunct Citizens Bank, Mazi Okechukwu Unegbu who spoke with The Guardian yesterday appealed to the Federal Government to give payment of local contractors top priority in the interest of Small and Medium Enterprises (SME), employment generation and the larger economy.

Unegbu, who is currently the Managing Director/Chief Executive of Maxifund Investments and Securities Plc, explained that some local contractors borrowed money from banks at exorbitant rate to execute projects, adding that it was unfair for them (local contractors) not to be paid after jobs had been executed.

“The effect trickles down. If the contractors are not paid, they may end up disengaging staff and not employing more hands. The government should give priority to local contractors in the interest of the economy,” Unegbu said.

An economist, Mr. Matthew R. Otiode, who spoke in a similar vein, advised the Federal Government to boost the economy through what he identified as adequate support for local contractors.

He said: “One area the Federal Government must concentrate on is providing a workable roadmap for the growth of local industries. That is the only way to grow the economy. The government cannot do it all. The government cannot employ everybody. But, through result-oriented policies, the private sector can contribute its quota positively. The private sector must not be discouraged through debt. If that is done, the economy may suffer.”

According to statistics obtained from the Securities and Exchange Commission (SEC) yesterday, state governments, which secured the approval to raise bonds from the capital market between 2006 and September this year, are Lagos, Kebbi, Imo, Kwara, Niger, Bayelsa, Kaduna, Ebonyi, Edo, Benue, Niger, Delta, Ekiti, Ondo, Rivers and Gombe.

The amounts range from N3.5 billion to N275 billion with years of maturity put at between 2006 and 2018 depending on the state government.

A bond is a debt instrument issued for a specified period of time with the purpose of raising capital by borrowing.

PricewaterhouseCoopers (PwC) partner and tax and corporate advisory services leader, Taiwo Oyedele, who spoke with The Guardian advised state legislatures and other stakeholders to take advantage of the Freedom of Information law to monitor closely how proceeds from the respective bonds are utilised.

According to Oyedele, stakeholders of the respective states should identify the projects for which the bonds are issued and monitor closely their execution and quality.

Otiode, who spoke in a similar vein, said there was nothing wrong in borrowing, adding that “it must be used for its intended purpose.

“People should show enough interest and commitment in development projects. To attain dividend of democracy on a sustainable basis, Nigerians must show commitments after elections.

“If your state government has issued a bond or borrowed money on behalf of everybody, it is your responsibility as a citizen to find out what the borrowed money was used for. There is nothing wrong with bond issuance. But, it must be judiciously used for the purpose it was intended. I want to use this opportunity to urge indigenes from states which obtained bonds to find out how the proceeds are being utilised.”

And to curtail the effect of increasing reliance on unconventional energy sources in the United States (U.S.) and a decrease in importation of oil from Nigeria, Otiode advised the Federal Government to diversify the economy.

He said: “This is the time to give adequate attention to the agricultural sector.”

According to him, agriculture can compete favourably with oil if given the required priority.

“It is very dangerous to rely solely on oil when we (Nigeria) have the advantage of other resources”, said Otiode, adding that, “This country (Nigeria) can survive without oil. What is needed is the political will to do what is right. Oil will not be there forever. The time to plan for the future is now. Let’s take advantage of agriculture and other sectors.”

Information obtained from SEC explained that to get approval for bond issuance, the Internally Generated Revenue (IGR) of the issuer shall not be less than 60 per cent of its total revenue of the state for the preceding year.

Also, according to SEC, investment in the bond issued but not backed by an irrevocable letter of authority shall be restricted to qualified institutional investors and high net worth individuals as defined under the rules and regulations.

“The guarantors, rating shall not be below investment grade. In addition to the issuer’s IGR, the issuer shall provide a third party guarantee from a bank, insurance company, supranational institutions, international financial institutions or any other acceptable to the commission, to cover payment of the principal and interest in the event of default.

“The guarantor shall be the primary banker of the issuer for the purposes of its IGR through the tenure of the   debt issue.

“In the event of default by the issuer, the trustee shall within three months of such default request the guarantor to pay the principal sum and interest outstanding on the debt issue. Notice of the request by the trustee to the guarantor shall be filed with the commission.

“The trustee shall within 30 days of such default notify the commission and outline further steps it intends to take in the matter.

“A duly executed copy of the third party guarantee shall be lodged with the trustee not later than five days before the issue is open to the public.

“The issuer shall disclose in the prospectus that the bond issue is not backed by an irrevocable letter of authority. This shall be boldly printed on the front cover of the prospectus.”

The Federal Capital Territory recently signed a $600 million (about N94.8 billion) loan deal with China’s Export-Import Bank, the lion’s share of which would be used to finance the building of a rail line.

The loan obtained at 2.50 per cent over a 20-year period, with a seven-year moratorium, ahead of plans by government to also issue a second Eurobond of about $600 million opens to Nigerians in Diaspora in 2013.

A member of the House of Representatives, Opeyemi Bamidele who is also Chairman, House Committee on Legislative Budget and Research, was quoted recently as saying: “We are now aggressively borrowing in such a manner that the private sector is now being stifled as the government is now the only big spender in the economy. The private sector cannot access funds domestically and that means they cannot create jobs that are expected of them.”

Also, while suggesting measures to reduce the nation’s domestic debt profile recently, Ibadan, Oyo State-based academic, Onike Rahaman, said that “greater attention needs to be paid to viable investment initiatives.”

He added: “If the government can ensure huge returns for private investors, the impact will be better felt by all and sundry instead of continuous borrowing. Irrespective of the present economic challenges, the government should stop paying lip service to problem of national debt as this remains a major obstacle to national development.”

Source: Guardian