By Emmanuel Ado
The United States of America,has a national debt of more than 20 trillion United States Dollars.But more worrying to the average American, is the more than 1.06 trillion dollars “extensive holdings” of the United States debt by the Peoples Republic of China, its mortal enemy as part of their reserves. The Americans are obviously not worried about the 1.09 trillion United States dollars debt,they owe the Japanese,as they are with the 1.06 trillion United States dollars they owe the Chinese. They don’t trust the Chinese,but they can’t help but continue do business with them. Stark fact of life.
The morbid fear of most Americans of the Chinese, led to The National Defence Authorization Act of 2012,under which the Secretary of Defence,was empowered by the Act ,to conduct a “national security risk assessment of U.S. federal debt held by China”. The Report to a very large extent calmed the nerves of most Americans, that have this great mistrust of the Communist China. According to the Report of the committee “Attempting to use U.S Treasury Securities as a coercive tool would have limited effect and likely would do more harm to China than to the United States. As the threat is not credible and the effect would be limited even if carried out”. So the Report calm the frayed nerves of most Americans, and emboldened America to continue to borrow from China.
The worry didn’t end with the National Defence Authorization Act. A National debate forced Congress taking another look at the Debt Ceiling- restrictions placed by the Congress to curb raising debt,which has been breached more, than it has been observed. In 2000,the Debt Ceiling was raised more than twelve (12) times to meet exigencies. In fact by 2014 it was suspended for one year. The reality is that Public Debt of the United States has consistently been on the increase, except during the presidencies of Jimmy Carter and Bill Clinton. Under Ronald Reagan, it rose drastically due to huge military spending. And between 2007-2008 due to the global financial crisis.
The same worry is being expressed in Nigeria, following the desire of the Federal and indeed most of the 36 states of Nigeria to borrow to fund their budgets, in the wake of dwindling foreign reserves, occasioned by low crude oil price- the all- in -all of Nigeria. The fear is that Nigeria is gradually getting caught up or is beginning to pile up debt, which it recently exited. The total debt stock of states has significantly increased from the 2012 level of N1.79tn to N2.12tn in 2014. Evidence that Nigeria must borrow, is the three(3),disastrous budgets of the Federal Government largely due to revenue crisis, and which in turn precipitated a recession. For three(3) years,the government woefully failed to put its act together due to lack of capacity and fear of public reaction. Meanwhile Buhari supporters kept dazzling Nigerians with figures, until Kemi Adeosun the Minister of Excuse and Finance revealed that more than 60% of the capital expenditure for the 2017 budget would be rolled over to the 2018 Budget, due to lack of funding. Hopefully the 2018 Budget,will be funded if the Senator Shehu Sani Local and Foreign Loans Committee acts expeditiously on the 5.5 billion United States Dollars loan request of the federal government and that of other states,that have been with the National Assembly since June.
The obvious challenge for Nigeria is real and fast growth. In fact it has to grow at a much higher rate than it has ever grown – considering the numerous challenges – decaying infrastructure,huge number of unemployed youths and the imperative of diversification. Nigeria must make haste while the sun still shines,while it still has some “credibility” to even borrow. How can Nigeria that aspires to be the fastest growing economy in the world, that aspires to grow from a developing to a developed economy, continue on this path of zero growth? The growth forecast for 2017, has been revised down from 2.7% to about 0.8%. This is a far cry from the governments 2.19%. And so long as oil production hovers around 1.4 to 1.6 million barrels per day, so long Nigeria will remain in crisis. The IMF which had earlier predicted Nigeria’s exit from recession this year, with an economic growth of 0.8 per cent, has changed its position, based on the reality that the economy did not grow enough to reduce unemployment and poverty.
What further options are open to governments, especially with the sharp drop in crude oil earnings? The obvious way out for the states are deepened reforms – from the rationalization of public expenditure to sustainable debt management. But after embarking on the imposed reforms,what are the other options? In 2016, the states and the federal government actually signed off on the 22-point fiscal sustainability plan, with the strategic objective of enhancing fiscal prudence and transparency in public expenditure. State governments were expected to abide by the strategic objectives of the FSP’s, built around accountability and transparency, increase in public revenue, rationalisation of public expenditure, public financial management reforms, and sustainable debt management. The ultimate objective is to assist the states travel the narrow path that will lead to fiscal sustainability.
But the truth as can be seen from the example of Kaduna State,is that the reforms are not enough.Before the surgical reforms performed by Ifueko Omoigui, one time Chairman of the Federal Inland Revenue Service, on the then Kaduna State Revenue Board. The board traditionally generated a paltry 600 million naira monthly, but the figure has been climbing steadily to about N1.7 billion a month.”It went up to 1.6 billion in June and July, and went as high as N2.1 billion in December, 2016, but on the average, the monthly collection stands at 1.4 billion, and no new tax has been imposed.
The times are dire and the recession is real, in spite of Kemi Adeosun’s semantics and sophistry. Kaduna State receives slightly above N2.4billion from the federation account and pays N2.2 billion as wage and a paltry N200million is left for service delivery. The outlook for 2018 doesn’t look bright, unless Donald Trump does Nigeria a favour by precipitating a war. While many states are defaulting in salary, Kaduna hasn’t, it’s in fact employing. Based on the 2016 Kaduna State Audited Statement of Account, Kaduna State received about 64 billion naira from the federation account and generated about 25 billion naira internally. For the third most populous state in Nigeria, with a population of about ten(10) million people, and 43,460 square KM, it’s total receipts is a far cry of what is needed to develop the state.
This is where borrowing becomes an option,amongst others for Kaduna State,which has continued to explore all options from the Private -Public Partnership to partnerships with Foundations like Bill and Belinda Gates Foundation to tackle immunization of children etc. For these and many other reasons the loan request of Kaduna State deserves to be approved, because it can do more. But from every indication Senator Shehu Sani, will use his position as Chairman of the Local and Foreign Loans Committee of the Senate to frustrate the Kaduna State Loans request of 350 million United States dollars. It is more of a pay back,than altruistic reasons,because Kaduna State Government has done fantastically well in embarking on the necessary reforms, including the biometric capturing of civil servants long before the federal government imposed them on states.
If Shehu Sani approves the loans request of the Federal Government, then he can’t in good judgement refuse Kaduna State request which is based on performance and which the World Bank has confirmed it has the capacity to manage. Yes, Kaduna State is amongst States with high Foreign Debt. But so are states like Ogun, Edo,and Cross River, which are also seeking for fresh Loans.The total Debt of the 36 states and the Federal Government as at December 2016 stood at 11.406 billion dollars. But Kaduna State has exhibited Fiscal discipline,improved revenue generation and has attracted more than three (3), industries,including the 150 million dollars Olam Integrated Farm. There is also the 5 billion naira, Vicampro Potatoes Farm. The State will obviously benefit from the multiplier effect in terms of employment taxes,etc. So the capacity to pay is not in doubt. It is also one State that can access funds from the capital market,due to its good rating.
Senator Shehu Sani believes that the loan would or might be stolen,hence he won’t append his signature. That assertion without evidence is unkind to officials of the Kaduna State Government. Senator Shehu Sani can conveniently use every excuse to delay or deny Kaduna State the loan, but the fact remains that he would be doing incalculable damage not to Kaduna State,but Nigeria. Rather than allow fear to hold him down, Senator Shehu Sani should strengthen the process that will help ensure that Loans are applied for the purpose for which they are obtained. For him to also claim that states would be denied access to foreign or local borrowing windows, due to the drop in their earnings from the Federation Account, is the height of voodoo Economics. The argument that the exchange rates makes servicing the loans difficult,is lazy,especially as the loans will be used to diversify and increase our foreign exchange earnings. Loans are a Catch 22 situation,but we can’t adopt the do nothing option.The states need the Loans,the challenge is ensuring that they are channelled to projects that can bring about sustainable development and impact on IGR. We have millions of youths,that lack patience,that are demanding change – we ignore them at our own peril.
The decision by the federal government that funds sourced through bonds must be on bankable, measurable projects and that the funds will be released in tranches and based on satisfactory utilization of previous releases is the way to go. The twin problems of Loans are corruption and misapplication…….these can be tackled and should be tackled,and that’s why the Senators are paid fat salaries.
The engagement of the Senate and the World Bank,on strategies to ensure proper utilization of Loans is the way to go,and not some confused and half baked socialist ideas.”Ensuring proper utilization of such loans by respective States government, we have met with world bank officials.We have given our honest advice to them on how to bring about fiscal discipline by states goverment on such loans”. Said Senator Ahmed Lawan,the Senate Leader after the engagement. And he did acknowledge the limited role of the National Assembly “The national assembly participates in a limited way in grantng states loans from international agencies including the wold bank. Normally, the federal government guarantees certain loans to states and therefore the national assembly scrutinises the programmes and projects that are lined for utilisation of those loans and this is our role. “
If the FSP is based on the fundamental principle that each State in Nigeria must be economically viable,that they must on improve accountability and transparency,that they must improve pubic financial management and sustainable debt management, then Kaduna State shouldn’t be denied the loan,because it has overshot all the FSP milestones – accountability and transparency; increase in public revenue; rationalized public expenditure; improved public financial management; and sustainable debt management. Nasir El – Rufai, on assumption of office didn’t think twice,about reducing the ministries from 24 to 14. He also embarked on biometric capture of all civil servants; and established an efficiency unit. Kaduna State surly needs the loan for investment in infrastructure,so that it can be the business destination of the North. It has shown some discipline in managing public funds – it has consistently published its Audited Statement of Account,which hasn’t been challenged.
Considering the economic crisis,Kaduna State might receive less than 70 billion naira from the federation account ,in 2017. The implication is that,had Nasir El – Rufai not embarked on the reforms,when he did, and collections were still at about 600 million naira a month,Kaduna State would have been thoroughly messed up. It would have never been able to fund its recurrent expenditure,pension and gratuity, which gulps more than 45 billion naira in a year and would have been amongst states owing workers.
Like everything in Nigeria the new song is boost Internally Generated Revenue, as against borrowing. But the truth is that no matter how efficient the tax agencies are, they can never collect enough to address the deficit.And this is largely because Nigerians don’t pay tax,only civil servants pay and because it is collected at source. In Kaduna State – home to the high and mighty, personal income tax accounts for near zero per cent of the total collections. The rich and mighty don’t also pay ground rent, nor pay for water. This pathetic picture has been compounded by the recession – with massive lay offs and declining company profit as a result of zero purchasing power of the people.
