ON KADUNA STATE $350M FOREIGN LOAN REQUEST
ON KADUNA STATE $350M FOREIGN LOAN REQUEST
By:
Nurudeen Dauda
October 24, 2017
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In my advise, the foreign loan request presented by Kaduna state government should and or must be either approved or rejected on its "merit" not "politics". In my view, I completely agree that , due process should and or must be strictly followed. Debt in itself is not necessary "bad", but what you spend the money on makes it " bad" or "good". If you borrow to sustain an ostentatious government life style or its over bloated bureaucracy is a "bad" economics, but if you borrow for infrastructure is a sound economics.
The United States of America is the most indebted country in the world yet the number one economy in the world. Lagos state is the most indebted state in Nigeria yet the most developed state economy in Nigeria. Dangote group is the most indebted in Africa yet the richest in Africa. Brazil is the most indebted country in Latin America yet the number one economy in the zone. Japan is the most indebted country in Asia yet the second biggest economy in Asia and the third in the world. South Africa is the most indebted country in Africa yet the second biggest economy in Africa. Germany is the 4th most indebted country in the world yet the biggest economy in Europe.
Professionally speaking, what both the Senate and house of Representatives committees on local and foreign debt need to consider before their recommendations to the two houses of the National Assembly for either its "approval" or "rejection " are:(1) What is the purpose of the loan?(2) What is the debt profile of the state in relations to its repayment capacity?(3) What are the sources of repayment ? (4) Are there alternative cheaper sources for the loan?(5) Are due process properly followed? etc.
If a government borrows and spends the money on "infrastructure ",such as: roads, rail, hospitals, schools and water etc., is a " good" economics. It will attract investors to set up businesses or companies and be paying taxes to the government. The companies will also employ people who will in turn pay personal income taxes to the government which the government could use in repaying the loan.
The government of Kaduna state according its spokesman said: its plans to obtain a foreign of $350m (about N12 billion) which is at the interest rate of 0.5%(50kobo) is for the improvement of health care, refurbishment of over 4000 public schools and other infrastructure in the state. The loan is to be repaid in 50 years with 10 years moratorium.
In my analysis, we have 600 months in 50 years. In addition, N12 billion if divided by 600 months it means upon the collection of the loan , the state will be paying N 20million plus 0.5% interest rate every month from its revenues for 50 years. Can the state afford it? However, because of the 10 years moratorium the payment will only commence after 10 years of collection. In a nutshell, the loan is for 60 years repayment period.
In my understanding, if the government of Kaduna state does its homework properly in packaging its loan request it has nothing to fear. The issue of debt, in my view, should not be politicized, but be looked at professionally. The interest of the state should be placed first not individuals from the divides. I know too very well that, Senate committee on foreign and local debt is not a one man committee, but a committee of Distinguished senators who is supposed to place professionalism above politics.
In my advise , the committee should and or must insist on details. It should make sure that the loan is purely for infrastructure not ostentatious expenditure. However, if details are provided and tied to infrastructure ,in my view, it becomes necessary for the committee to recommend for its approval to the Senate. However, if the details are not provided in the request, then the committee may recommend otherwise. The Senate committee should and or must be reminded that the loan requests of about 22 states have passed through the Ministry of Finance, DMO, and the National Assembly before reaching their committee. The details of the respective requests are in many places. Let's do the needful!
Before States Governors could obtain foreign loans without recourse to the Federal Government or National Assembly, but due its abuse by past leaders it has since been changed. The constitution of the Federal Republic of Nigeria now states that no state government or agency can borrow externally without approval of the Federal Government, no state has the capacity constitutionally to borrow unless through the Federal government. The law states that any state that is interested in borrowing will first of all package their proposal which is to be sent to the Minister of Finance, then the Minister will refer it to Debt Management Office, DMO, and the DMO will process request after its investigations and then send it to the National Assembly.
May God bless Kaduna state!