Prof. Kingsley Moghalu, a former deputy governor of the Central Bank of Nigeria, has described as sensation the fuss over Nigeria’s sovereignty in its infrastructure loan contract with China.
He however pointed out ‘deeper’ and ‘wider’ issues that call for worry. He did this in a series of tweets on Monday.
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Moghalu said Nigerians should be concerned with the fact that the country has become fiscally unviable, spending all its revenues servicing debt.
“The loan is part of a larger problem of sovereign debt crisis Nigeria is walking into, and the fact the country has become fiscally unviable and its government feels it needs the borrow constantly to stay afloat and execute some infrastructure projects. We now spend nearly all our revenues servicing debt. Is a country in this situation fiscally viable? I think not, if we must be honest with ourselves. This is not an unavoidable situation. There are alternative paths, but they require hard thinking and hard work,” he tweeted.
“That we spent 99% of retained federal govt revenues in Q1 of 2020 servicing debt doesn’t bode well for Nigeria. We include debt servicing in our national budget, so we may be seen as a “good borrower” by creditors like China and others, but this is not good for our country.
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“Our total debt now is around $90 billion, over $30 billion of it external debt. Our debt to China is $3.1 billion, concessional loans with 2.5% interest rate, repayable over 20 years, and with a seven-year grace period. It sounds good. But here’s the problem: One, our overall debt burden means we have very little left to spend on real development- education, healthcare etc. With oil prices low, and debt service obligations fixed, there is a serious mismatch between revenues and our ability to repay. This exposes us to massive risk, beyond the development costs of excessive foreign borrowing.
“We are told by the Nigerian government and it’s Debt Management Office (DMO) that our debt to GDP ratio is OK at around 30%. But what matters more for a country with a very low tax to GDP ratio of 6% is not the ratio of debt to GDP. It is the ratio of revenue to debt service, especially because we rely on oil for over 90% of foreign currency revenue, and the oil price is volatile. We are not a productive, export economy but a commodity dependent, import driven one.”
Moghalu said the China loans benefit the Asian country more than Nigeria, explaining that the loans are used to finance contracts awarded to Chinese companies, who use labour as well as supplies from their country. He added that the loans are a way for China to promote its export.
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“The public is not aware of and has no chance to debate these contracts. Inclusive governance and transparency are key aspects of good governance. There is no competitive bidding for the projects financed by China loans. The projects such as railways and airport terminals are awarded to Chinese firms, the supplies are from China, labor is from China. This is a rip-off. This is not a loan. It is much more. Nigeria is subsidizing China’s export strategy as financed by that country’s Export-Import Bank. We have no independence in how we use such borrowed funds.
“There are also cost concerns regarding these projects, even when executed by China, and there is evidence that such projects are significantly cheaper in other countries such as Ethiopia than in Nigeria.
“So the fund in the so-called loans return to China, and is just a way for China to promote its exports, part of a grand Chinese economic and expansion strategy. Nigeria is becoming part of the “Sinosphere”, China’s orbit of client states in Africa, Asia and Latin America,” he said.
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The presidential candidate of the Young Progressive Party (YPP) in the 2019 general elections also said Nigeria, rather than borrow, could have attracted private sector infrastructure investments through public-private partnerships (PPP) if an enabling environment can be created.
“Fourth, in any case, foreign borrowing for infrastructure is not really a prudent approach for a country that can attract private sector infrastructure investments through public-private partnerships (PPP) if we are serious and create the enabling environment.
“We need to move more in this direction. We have a large population and a large market. Private sector firms can build railroads and motorways and bridges, own and operate them for profit through tolls and other revenues for, say 20 or 25 years and return them to government ownership. Some laws should be amended to make this easier. Sixth, there are accountability issues. How much revenue do these infrastructure projects really earn to justify the massive borrowing for them?
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“What’s the cost-benefit analysis before and after their construction? It would be good to know. Abuja-Kaduna rail line is subsidized from available information. Seventh, flowing from the above, we need to base these borrowing decisions on economic grounds, not the POLITICAL factors that obviously drive them. Even the politics needs to be more inclusive.
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“The Southeast zone has little if any projects from these loans, a subject or many complaints from the region. Do their taxes not contribute to government revenues used to repay the China loans? We should beware of “taxation without representation”. We must rethink our economic management.,” he concluded.
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