LCCI, CIBN Ex- Bosses, Others React to Senate Approval of Buhari’s $6.183 billion Loan Request

Industry experts has reacted to President Buhari Mohammadu’s $6.183 billion loan request approved yesterday by the senate.

Recall, Business Remarks reported that the National Assembly on Wednesday approved the request of President Muhammadu Buhari, to borrow N2.34trillion to partly finance the 2021 federal budget size of N13 trillion.

This resolution of the Senate follows the approval of its Committee on Local and Foreign Loans as presented by the Chairman, Clifford Ordia.

President Buhari explained that the loan would enable the Federal Government fund critical infrastructural projects in transportation, health and education, among others.

The former, Director- General, Lagos Chamber of Commerce and Industry (LCCI), Mr. Muda Yusuf stated that the rising debt profile of Nigeria raises serious sustainability concern with the country’s revenue challenge.

He, however called for the political-will to cut down on expenditure.

He disclosed that there is urgent need to undertake reforms that could downscale the size of government, reduce cost of governance and ease the fiscal burden on government.

Yusuf explained that the emphasis on borrowing should be on concessionary financing,  as opposed to commercial debts which are typically very costly.

He further urged the Buhari ‘s government to use the acquired loan strictly on capital projects to upscale the production capacity of the economy.

“I suppose the request is part of the borrowing plan to finance the deficit in the 2021 budget.  The plan has been approved by the National Assembly, both in the Medium Term Expenditure Framework (MTEF) and the 2021 Appropriation Act.

“It is not an entirely new proposition.  However, the rising debt profile of government raises serious sustainability concerns.  Although government tends to argue that the condition is not a debt problem, but a revenue challenge.  But the truth is that debt becomes a problem if the revenue base is not strong enough to service the debt sustainably. It invariably becomes a debt problem.

“It is important to ensure that the debt is used strictly to fund capital projects that would strengthen the productive capacity of the economy.  This is position of the Fiscal Responsibility Act,” he stated.

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Responding also, former President/Chairman of Council of the Chartered Institute of Bankers of Nigeria( CIBN), said federal government is faced with challenges of cost overrun traceable to inflationary pressure.

Prof Ajibola explained that if the N2.34trillion borrowing is designed to finance 2021 budget deficit of N5trillion, then it is in order.

He noted that borrowing for project financing with well articulated performance matrix for repayment purposes is justified in an environment like Nigeria.

He described borrowing to finance consumption as a bad financing template.

“The supplementary budget of close to N900billion is a reflection of the challenges of cost overrun and variances at the various levels in the MDAs, not to rule out the possibility of unanticipated expenses at the point of presenting the budget for approval. Cost overrun is traceable to inflationary pressure and Naira devaluation.

“We should remember that one of the key elements of 2021 budget is fiscal deficit of about N5trillion, expected to be financed through local and foreign borrowings. If this is the case for the proposed  N2.34trillion borrowing, then it is in order,” he said.

In addition, the Vice Chairman, Highcap Securities, Mr. David Adonri noted that, federal government’s resort to foreign loans for infrastructural development is unwise.

He also stated that the increasing Nigeria’s public debt is unsustainable.

According to him, “FGN’s borrowing is alarming. The Minister of Finance stated recently that 97% per cent of revenue was used to service debt in first quarter of the year.

“Nigeria is now in the deep water of debt trap. The damage has been done already and with the ambitious debt issuance program of FGN, the damage is intensifying with undiminished intensity. With the way things stand, sovereign default in near future cannot be ruled out.

“The major problem is high foreign component of Nigeria’s debt which must be repaid in hard currency. Record shows that the foreign debt is not channelled into projects that will generate hard currency and hence facilitate repayment.

“Due to the sovereign power of government to create domestic money, the domestic public debt can be extinguished readily even if at the expense of precipitating hyperinflation.

 

“So far Nigeria’s foreign debt is over $33billion and may have surpassed the dangerous level where President Obasanjo extricated us from.

“We are sinking deeper into the mess with reckless approvals by the National Assembly for the executive to continue its borrowing spree.

“Resort to foreign borrowing by FGN to develop the country, especially infrastructure is unwise. No developed country borrows externally to finance domestic development. Instead, they issue domestic debt into which foreigners can invest so as to domesticate the repayment obligation.

“Secondly, Nigeria has abundant natural resources and skilled labour that can be mobilized locally to develop critical engineering infrastructure which is the missing link.

“Resort to importation of all factors required for development is behind Nigeria’s insatiable appetite for foreign loans.

“Nigeria’s mounting public debt is unsustainable. Other financing options like invest trust funds can be mobilized for projects finance instead of debt,” he said.

 

 

Buhari Loan Request