Borrowings: World Bank Blasts Adeosun

The World Bank has blasted the Minister of Finance, Kemi Adeosun, for insisting that the Federal Government must borrow more in order to develop the nation’s infrastructure and stimulate the economy.

Speaking through its Senior Economist, Gloria Joseph-Raji, on Monday in Abuja, the World Bank said the cost of borrowing or paying interest on Nigeria’s debt was not sustainable as revenues to make such payment had dried up.

Recall that Adeosun, on Sunday at a press briefing rounding off the World Bank/International Monetary Fund annual meeting in Washington DC, United States, said that Nigerians would have to tolerate more borrowings in the short term for the government to deliver critical infrastructure.

In her reaction, Joseph-Raji noted the poor revenue would have her claim untrue.

She said in 2015, the country’s debt to revenue ratio stood at 35 percent but rose to 60 percent by 2016, reflecting a reduction in government revenues and rising debt profile, thereby raising a question about the debt sustainability.

Joseph-Raji said, “Nigeria has a decent debt-to-GDP ratio, currently about 19 percent. It is the debt to revenue ratio that is of concern and that rate is a sustainable issue. That is of concern to us and that is also of concern to the government.

"The government is aware that the debt is looking more unsustainable from the point of debt service to revenue ratio. The estimate we had for last year at the federal level was about 60 percent. That is coming from about 35 percent in 2015.

“That reflects the substantially lower revenues that Nigeria recorded last year. Even among the state governments; we know that a lot of state governments are servicing a lot of debts from their federation account allocation. So, there is really going to be a sustainable issue emerging.”

The World Bank expert said she was concerned about the sustainability of the country’s debt, especially the huge domestic borrowing with high-interest rate, which prompted the Debt Management Office to come up with a strategy to rebalance the country’s debt portfolio.

She said, “The DMO released the Debt Management Strategy 2016 to 2019 last year.
"The strategy was to rebalance the debt portfolio from more of domestic now to more of foreign. That is because of the debt servicing cost.

“Before now we had a debt portfolio of about 80 percent domestic to 20 percent external. We know that the debt servicing cost of domestic debt is really high. Treasury bill is an average of 18 percent; the FGN bonds, from 16 percent.

"The government is trying to rebalance its portfolio with foreign debt, which has much lower interest rate than domestic debt. That is why this year you have seen them go for Eurobonds, with a total of $1.5bn in the first quarter of the year. They also did Diaspora bond of $300m. If you look at the yield on those bonds, they are much less than 10 percent.

“The government is aware that there is a sustainable issue and that is what they are trying to correct by taking more foreign debt.”

Joseph-Raji said in the light of expenditure exceeding revenue, the government should borrow, but it should borrow in a manner that was sustainable.

Also speaking, the Head of Abuja office of Social Action, a Non-Governmental Organisation active in debt relief advocacy, Vivian Bellonwu-Okafor, said the government needed to think about better ways of managing the economy.

She said borrowing $3bn from abroad to refinance local debts was replacing one evil with another evil.

Bellonwu-Okafor said foreign borrowing would invariably lead to annual debt servicing in hard currency to foreign lenders.

She said, “The $3bn debt refinancing arrangement, as proposed by the Federal Government, does not solve the country’s rising debt problem; it merely trades one evil for another.

“Borrowing longer-term foreign loans to pay off maturing short-term domestic debt, instead of taking actual steps to gradually reduce and exit debt overhang, is a demonstration of poor economic management.

“Several developing countries have adopted far-reaching domestic strategies to mitigate the effects of international market shocks and global financial crisis.

“While countries like Malaysia are increasing internal investments to develop their economies and make them as independent and vibrant as possible, rather than shrink deeper into global financial waters, Nigeria seems to be doing quite the opposite; preparing frameworks and opportunities for more foreign exchange and capital flight from the country in annual debt servicing.”

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