BETWEEN SALES OF NATIONAL ASSETS AND BORROWING!
BETWEEN SALES OF NATIONAL ASSETS AND BORROWING!
By:
Nurudeen Dauda
October 28, 2016
Giving the "OPTION" between the sales of National Assets and borrowing l will choose borrowing at lest for now as against the former. The only way to get out of "RECESSION" quickly is through massive spending, especially in capital projects. There is no enough cash in the economy! The main sources of government revenue is crude oil which has fallen from $115 to $48 (comes militancy which reduces daily production to 1.4million from 2.2million barrels).
We need to spend "money" in order to get out of recession. When you don't have the resources to spend what do you do? You mean the government should rather sale its National Assets or watch helplessly? We have the option of either selling our National Assets or to borrow and reflate or jump start the economy. I support borrowing but for capital projects not recurrent budget. Let's borrow for roads, housing, railways,dams,bridges,schools and hospitals constructions.
Debt in itself is not a “bad” thing, but what you use it for determines whether it is “bad” or “good”.Alh. Aliko Dangote, in 1977, borrowed about N500, 000 from his uncle to trade basic foods: cooking oil, sugar, pasta. Four years later he bought trucks to start a transport firm and within a decade was importing bulk goods…” (Daily Trust: September 12, 2012:P.19). United States of America is the “most indebted” country in the world yet the strongest economy in the world; Alh. Aliko Dangote is the most indebted African yet the richest African! Lagos state is the most indebted state in Nigeria yet the strongest economy among all the 36 states in Nigeria. Only Lagos state can pay salaries without federal allocation! Too bad!
The abolishment of “Trade by Barter” and the introduction of “Money” as a means of payment makes borrowing “inevitable” in “Modern economy”. To borrow and “marry” or “remarry” is “reckless” as well as “mindless”, indeed is a bad economics! But to borrow and build a “House” or starts up a viable business is a sound economics. To borrow and pay salaries is a bad economics but it might be humanly considerable. Experience in debt management reveals that what kills borrowers most is needless “investment” or borrowing for “consumption” not investments. If you borrow and increase your daily expenses or engage in “jamboree” it will sooner than later “spell doom” to you. Ideally, all borrowing should be for “capital expenditure”; if you borrow to “invest” you are likely to generate returns and payback with ease; if you borrow for “consumption” is not a sound economics.
“Infrastructural projects such as rail and roads create jobs, generate taxes and stimulate further spending. This is the economic multiplier effect that capital spending brings…At 13% debt to GDP ratio, we campare favourably with the threshold of 30% for developing economies… Borrowing as propose ,will increase debt to GDP to 16% and still leave us significantly lower than our peer group including Ghana at 70% , South Africa at 50% (2015) and Angola at 31%(2014). Appropriate levels of fiscal deficit have been used to grow many of the most successful global economies” -Kemi Adeosu, Finance Minister (Daily Trust: April 7, 2016:P. 44).
What Nigerians should know about is that, the loan that the present government wants to collect is neither from IMF nor World Bank. More so, the loans are for roads, rail lines, housing and bridges and not for payment of “salaries” of “consumption”. And with the anti corruption stands of the present government we do not expect “diversion” of the said loans upon collection.
IMF and World Bank loans are what many scholars have frowned at because it comes with harsh conditionality (ies). President Buhari refused to collect the IMF’s loan in the 80s when he was the “Head of States”. The IMF loan conditions then require that:(1) Devaluation of currency, (2) liberalization of trade,(3) Privatization of Public Corporations ,(4) Rationalization of workers, and(5) Removal of Subsidy on essential commodities etc. However, the Government of IBB collected the IMF’s loan of $9billion in 1986 and introduced “Structural Adjustment Programme (SAP) in 1986.
However, in borrowing we have both “Domestic” and “Foreign” sources. The domestic sources are from: Commercial Banks, Stock Exchange Market, and Government bonds etc., for foreign sources are from: Foreign Governments, Foreign Banks, London/Paris Clubs, IMF, World Bank and other corporate bodies etc. For domestic borrowing the effect is on the “individuals” while the foreign borrowing is on the economy. Lenders feel more secured to give government loans than otherwise as such domestic borrowing usually crowds out the local firms from assessing funds for their businesses thereby affecting their productivity; the foreign borrowing on the other hand, is cheaper and available.
Interestingly, even the IMF’s and the World Bank’s loans were once granted to some countries which they used and paid off in good time. Brazil Paid Off IMF Loan earlier than the agreed terms: Brazil received a $41.5 billion IMF-led international support program in November 1998. In a highly unusual move for a Latin American country, Brazil paid off its debt to the International Monetary Fund (IMF) a year ahead of time. Brazil's final payment of $15.46 billion was made in December 2005. The funds came from Brazil's monetary reserves of $66.7 billion.
Beginning in the 1970s, Jamaica and then Guyana obtained assistance from the IMF to address balance of payments imbalances. Since then, Barbados, Trinidad and Tobago, Dominica, Grenada and Belize have accepted IMF stabilization programs as a condition for receiving financing. All these countries suffered periods of contraction but succeeded to various degrees in returning to a path of sustained growth. Fiscal policy proved the most successful in reversing the negative economic growth.
As as country we did not manage our boom properly. What a pity!
“… we left $25billion on our Excess Crude Account and Yar’adua raised it to $35billion…we left $40billion on the foreign Reserves and Yar’adua raised it to $67billion… our debt that was about 40billion dollars, that is including debt forgiveness, the remaining debt was not more than $3billion.Our reserves after we had paid off this debt was about $45billion”- President Obasanjo said while hosting South-West Women Leader in Abeokuta, 5th January, 2015.
Alh. Ahmed Joda, the Chairman Buhari’s Transition Committee-“ We were told at the beginning of the exercise that the government was in deficit of at least N1.3 trillion by the end people were talking about N7trillion…”(Daily Trust Sunday: June 21,2015: P.6). “Local and international debt stands at $60billion (12.trillion).Our Debt service bill for 2015 is N953.6billion, 21% of our budget” Vice President, Prof. Yemi Osibanjo (Premium times, May 2015).
It is an undeniable fact that for the greater part of the last 16 years crude oil which is the mainstay of our economy was sold at above $100 per barrel but sadly to mention we didn’t save anything for the rainy days. They could not diversify the economy either!
Profession Charles Chukuma Soludo, Former CNB, Governor said: “… President Jonathan’s regime had the worst economic management relative to the resources at its disposal…it should have left more than $100 billion in reserves but left only $30billion… we felt little impact of the global economic crisis of the 2008/2009 because of heavy reserves of over $40billion…Oil has indeed been a curse!”
Former Minister of Finance Dr Ngozi Okonjo- Iweala while speaking recently in George Washington University on a topic “Inequality, growth and resilience said: “World Bank and International Monetary Fund (IMF) must seek means to embed savings in national constitutions devoid of political manipulation. She however, said: “her former boss Former President Goodluck Jonathan was not interested in saving Nigeria’s huge earnings from oil and other sources between 2011 and 2015.The absence of political will to save under Former President Goodluck Jonathan is responsible for the hardship facing the country currently(Leadership Friday :April 15,2016).
President Buhari said: ”In the first republic, more enduring infrastructure was built with meager resources. But in the past 16 years, we made a lot of money without planning for the rainy day. We showed a lot of indiscipline in managing our economy, and that is why we are where we are today. But this time around, we will do our best” (Leadership Newspapers: April, 12, 2016:p.19).
Ultimately borrowing is not a crime! In view of the deficit financial position as well as the dwindling resources occasion by the fall in the crude oil price in the international market inherited by this government from the previous government ,it needs to borrow in order to restart the economy otherwise things will get worse in the economy. We need to borrow and generate more Electricity, construct Roads, Hospitals, Bridges, Housing and Rail lines etc. The proceeds from those projects will repay the loans. Let’s borrow more but for capital project not recurrent expenditures.
May God save us!