SOVEREIGN DEBT: How private creditors plunging Nigeria into economic crisis, impeding physical development – CISLAC, Christian Aid
By BASHIR ADEFAKA
“CISLAC with support from its partner, Christian Aid, undertook a series of engagements centered on revealing and challenging the role of private creditors in the debt crisis which has hindered the economic recovery of struggling economies like Nigeria to enhance the urgency with which our governments and the international community must address sovereign debt crises.”
Barely two decades after Paris debt buyback that saw Nigeria’s sovereign debt crashed to an almost ground zero, the debt burden of the country has now reached an all time high of over $103 billion (N42.8 trillion) as at March 2022, Civil Society Legislative Advocacy Centre (CISLAC) cries out.
The accountability and transparency advocacy group’s main cry is predicated on the fact that despite the loans being taken, successive administrations in the Africa’s most populous country have been unable to meet their obligations either for national economic growth and development or better life of the people, who are supposed to be major reason of government existence in the first instance.
At a Media Presentation of Research on the role of Private Creditors in Nigeria Debt Crisis and Its Human Cost, held at Joygate Hotel, International Airport Road, Ajao Estate, Lagos, on Friday, CISLAC, in collaboration with Christian Aid Nigeria, said veering into borrowing loans from private creditors, by government of Nigeria, was plunging the country into debt burden and impeding its ability to ensure physical human capital growth and development.
According to the organisation, external component of Nigeria’s debt currently is $40 billion, which represents 1,333 percent of what it was in 2006. With this reality steering it in the face, Nigeria appears to be heading towards another debt crisis, it said.
It is against this backdrop that the Civil Society Legislative Advocacy Centre (CISLAC) with support from Christian Aid organised the media presentation where stakeholders agreed that for governments to desist from borrowing, it will have to embark on capital expenditure that will promote Gross Domestic Product (GDP) and also to maintain a realistic debt management model that can help improve debt sustainability and fiscal prudence in governance.
In his opening remarks at the event, Executive Director of CISLAC, Auwal Ibrahim Musa (Rafsanjani), who spoke virtually via zoom, said:
“We find today’s engagement crucial to amplifying the interests of the 130 million multidimensionally poor Nigerians, as well as a huge percentage of those who sit above the poverty line, whose lives and livelihoods and future are being impacted by gross lack of adequate investment in critical social sectors and the growing threats of climate change.
“As we all know, Nigeria is presently in a debt crisis – with a fiscal deficit well above the statutory threshold of 3%, an increasingly unsustainable debt profile, a rising cost of debt servicing worsened by the rising interest rates, and socio-economic investments sacrificed at that expense.
“CISLAC with support from its partner, Christian Aid, undertook a series of engagements centered on revealing and challenging the role of private creditors in the debt crisis which has hindered the economic recovery of struggling economies like Nigeria to enhance the urgency with which our governments and the international community must address sovereign debt crises.
“This has included a research commissioned to fully highlight the Nigerian context and dimensions of the indebtedness to private creditors for policy options and deliberate efforts to ending it as well as a policy roundtable on the modality for setting a debt limit as a veritable mechanism for providing the parameter for checks and control of the debt stockpile of all the tiers of Government and ultimately avert a national public debt crises of bankruptcy proportions.
“As we share the findings of this research today, we hope that it contributes to protecting the interests of present and future generations by spurring present and incoming governments in Nigeria to commit to and take urgent actions to salvage the country from the current and impending economic throes,” Rafsanjani said.
Mr. Botti Isaac, the research consultant while making his presentation on the FORGE research findings, clearly explained the problems with patronising private creditors, the evils doing so accrues to a nation of Nigeria’s stature and why, despite the gains of accessibility of it Nigeria has remained at same point neither being to meet its obligations nor move forward.
Noting that the loans problem is not just by the Federal Government but also the 36 states of the Federation, the research consultant said the major issue is because the law or legal framework guiding borrowing in the country does not support doing so outside of multi-lateral and bi-lateral arrangement. He, however, faulted the requirements for accessing loan from the private creditors, which make it easier for government to take, but insisted that, as civil society groups and media organisations, they would continue to talk until the right thing will be done to save the soul of Nigeria from burden of such debts.
Need to be concerned
“We need to be concerned because most of the loans and their private creditors are not known to the public. The law is that loan can be taken from multilateral, bilateral and at conventional interest rate.
“We also need to be concerned because it is difficult to under the terms and conditions under which these loans are obtained, which is not the case if they were taken from the sources approved within the legal framework for borrowing.
“We need to be concerned because, despite that we borrow, we are still unable to our obligations,” adding that the problem is because, it is Luke some people just wake up and want nothing more or less than taking loan.
He said that loans from private creditors pose serious danger to the health of Nigerian economy and explained, citing why government has not been able to meet up it’s obligations despite the loans, adding that “the problem with this is not the lack of legal framework but adherence. Nigerian government has been able to depend on commercial loan because it is cheap and easy to access” but, strictly speaking full of ambiguities.
He talked about alternatives like the $800 billion the Economic and Financial Crime Commission (EFCC) recently traced that a foreign company failed to remit to the Federal Government. This is alternative money that can be used instead of borrowing, he said.
He noted that reason people misunderstand government policies particularly on loans is because the terms and conditions of the loans are shrouded in ambiguities.
More danger adherent to loan servicing, especially from private creditors and why the servicing has impeded nation moving forward is in the lack of specific public debt auditing mechanism, poor foreign exchange policy where loan borrowed at N165 to $1 is serviced with foreign exchange of N450 to $1, for instance. Part of the reasons for the poor forex, he however said, is that, “we are not productive enough to generate more foreign exchange”.
Poverty not product of nature – Christian Aid
Speaking to Journalists at the program, the head of Program, Christian Aid Nigeria, Mr. Victor Arokoyo, said the 75-year-old international faith-based development and humanitarian organisation that will be 20-year-old in Nigeria next month, believes that poverty is not a product of nature but of a systemic manipulation of the economic system skewed against some people and make them to be poor.
“In line with our economic justice and social and political justice, we are part of the tax justice and political platform in Nigeria. One of the things we are doing around that governance platform is campaign for private creditors to begin to see the need not to give Nigeria loan again because their loan is costing government the ability to respond to public services.
“For example, you can see from the graph that was shown by the research consultant, said much money is spent on servicing debt compared to what is spent on education and health. And then, our debt and revenue ratio, you can see that we are borrowing now to pay debt. I borrow Mr A’s money, I can no longer pay. I will go and borrow from B to pay A.
“So, there is no wisdom in it and there are other sources from which we can get money to address this. Particularly, what government is currently doing is against the law.
“The law prescribes the kind of loan you can take and where you can take it from. What government is doing now is to go outside that legal framework to collect loan anywhere the money is available and then put the country in serious debt burden.
“So, we are interested in widening the knowledge of citizens about this issue and possibly for citizens to demand from the government the need to look inward. Let us have some period of pains now so that we can have gains tomorrow, rather than have gains now and our children will have pains tomorrow.
“That is the essence of our collaborating with CISLAC to see how we can really campaign against the issue of private creditors. Because they are difficult to be asked to give you a relief. Multilateral, bilateral, you can easily negotiate for rescheduling, for loan forgiveness. But a private person that invested his money, you cannot go and meet such a private person for that kind of relief,” the Christian Aid official said.
Nigeria as it currently stands
During the question and answer session, Mr. Chinedu Bassey, Program Manager, Tax Justice Program of CISLAC gave a similitude of Nigeria in form of a standing fan.
“Nigeria, as it stands currently, is like the case of a standing fan. It should blow in rotation to reach everyone where he is seated but from time immemorial, the standing fan of Nigeria has been blowing to one direction and to the sane set of people. Instead, therefore, for everyone to work to correct the problem making it impossible for the fan to rotate and blow to everyone, people are all rushing to the fixed direction, there there is crisis.”
Chinedu clarified that the people, whose loans are problem for Nigeria and the research work is talking about are neither China nor the Sukuk but the private creditors who contribute about 40 percent of the stock, although not supported by the legal framework, but who take more percentage in debt servicing than the 60 percent other creditors captured in the legal framework. “The research work is saying that all loans that must be taken must be conventional,” the CISLAC official said.
Among other contributions were those that wanted Journalists, civil society groups, educational sector to begin to ask questions because the loans do not affect the takers but the people.
“What this meeting is saying is that our leaders are pretending like there are no alternatives to taking loans. Suggestions have been given that government does not look into. We must continue to talk about it until the right thing is done,” one of the contributors said.
On issue of tax concession, Chinedu of CISLAC urged that tax concession should be bidden for and the highest bidder should get it, against the current situation where few handpicked persons or companies are unilaterally made to enjoy same.
“List all projects of Federal Government abd let people bid to handle those projects and then give the highest of them tax concession. This is another alternative to borrowing loans,” he said.
The bottomline of the media presentation was that the stakeholders agreed on a takeaway that private creditors are neither friends nor ate they economic development partners but agents of backwardness that Nigeria must do away with, adding that the pretext by leaders of the country that there are no alternatives to borrowing should stop.
Recommendations
The forum, therefore, made 11 recommendations put forward as a way of forestalling future debt crisis and ensuring effective management of sovereign debt. They include, one, the need for the government to boost its revenue generation and improve its inter-temporal budget constraints; second, to reduce reliance on borrowings from the international capital market or commercial loans; three, to maintain a realistic Debt Management Model to help improve debt sustainability and fiscal prudence; four, to establish a specific Debt Performance auditing Mechanism to effectively monitor the impact of public debt on the country’s development as well as determine how debt is contributing to human security.
Also, five, for government to strengthen the Foreign Exchange Policy to reduce the impact of volatility on loan repayment and thereby reduce the public debt burden that arises from local currency devaluation; six, to improve public borrowing transparency and accountability; seven, to improve legislative oversight – loan approvals should carry out proper scrutiny, with lawmakers subjecting such requests to public hearings and input; eight, to establish an independent committee that comprises civil society representatives, the Auditor General Office, the Ministry of Finance and the DMO to carry out an independent review of all future loan requests with the view to determine their variability and importance, among others.
