Tag: Anxiety

•The sin is not in borrowing but in bad faith

The Senate Committee on Local and Foreign Debts, without doubt, has good reason to be anxious, even suspicious, of fresh demands by the federal and state governments to obtain foreign loans. On December 6, the Minister of State for Finance, Dr. Yerima Ngama, led the affected state commissioners of finance to appear before the committee to defend their proposals for external borrowing under the Medium Term Expenditure Framework for 2012 to 2014.

While the state governments are seeking loans worth $3.05 billion, the Federal Government wants to access $4.846 billion from the international credit market. In making a case for approval of the loans, Dr. Ngama stressed that the country’s external loan status still falls within 17 percent of its Gross Domestic Product (GDP), so there is no need to worry about any adverse effects of the loan burden.

Quite understandably, the Senate committee was more concerned about the request of state governments to access foreign loans than the similar demand by the Federal Government. This may have been borne out of the perception that the Federal Government has a greater capacity to effectively manage and ultimately repay such loans. However, there is nothing in the country’s fiscal history to suggest that the Federal Government is necessarily more adept at managing resources, including loans, than state governments.

Ondo State Government is seeking $77.9 million credit out of which $50 million will be expended on health programmes and $27.9 million on youth employment. The $148 million being sought by the Enugu State Government is broken down into $50 million for water shed management project, $40 million for youth empowerment and $40 million for an energy project. On its part, the Niger State Government wants $124 million of which $78 million will be for rural mobility, $14 million for irrigation and $32 million for its FADAMA project. The Anambra State government’s request for $75 million is meant for erosion and flood control.

In his own case, the Lagos State Governor, Mr. Babatunde Raji Fashola (SAN), has requested that the second tranche of his $600 million borrowing plan to provide better infrastructure for Lagos be included in the 2013 external borrowing projections.

Since the state governments have given the specific purposes for which they are seeking international credit, we find it difficult to understand why the Chairman of the Senate Committee on Local and Foreign Debts, Senator Ehigue Uzanere, still believes that the loans being sought are not for programmes that will have direct impact on the lives of their people. We believe that the state governments are in a better position to determine the most pressing needs of their people.

It is perhaps the mismanagement of foreign loans by various arms of government in the past that has engendered a suspicion of borrowing by most Nigerians. Furthermore, the funfair that greeted Nigeria’s exit from external indebtedness under the Olusegun Obasanjo Administration had created the mistaken impression that the country would never need to borrow again. In reality, borrowing, either from the local or international credit market, is no sin. It is indeed normal practice in contemporary financial management as no government has all the resources it needs to meet its infrastructure and other responsibilities.

Beyond this, the state governments have the constitutional right to borrow from international credit agencies. But we support the Senate committee’s admonition that external borrowing by either the federal or state governments must be responsibly and efficiently managed. However, since the Federal Government is expected to guarantee external loans by states, the Central Bank of Nigeria (CBN) should come up with requisite guidelines to ensure such borrowing does not ultimately harm the national economy.