By Sheriffdeen A. Tella
Addiction is a big disease that can be very difficult to cure. And when that addiction has to do with money, it can become incurable. In economics, the concept of diminishing marginal utility is a common phenomenon. It implies that the more of a commodity, product or a thing an individual possesses, the less the satisfaction he derives from additional quantity or the less the desire to have more of the commodity. That concept does not hold for money in most cases and that is why the concept of greed is more relevant to money than diminishing marginal utility.
Loan, particularly external loan, has become an addiction to Nigerian governments such that the whole of an annual budget implementation can be hinged on loan while the available funds are reserved for something else including looting. The country hardly frees itself from the debt market. In the quest to contract new loans under the evil power of addiction, toxic conditions attached to loans do not matter, such that the conditions for the loan repayment is often overlooked for the availability of the loan itself. That is, what matters is getting the loan, not even the repayment. That is why it is easy to sell the country’s sovereignty for US$400 million loan because the facilitators of the loan acquisition did not care to study the conditions attached. It is therefore imperative to study or verify the conditions under which other loans were obtained and take necessary actions before we are sold out!
As soon as a government clears the debt table when there is fund and willingness to do so, one can be sure new documents seeking loans are already on the president’s table, notwithstanding the favourable condition of the country’s oil sector and external reserves. That is the sign of addiction. For instance, as soon as the Obasanjo government settled the country’s huge debt between 2005 and 2007, and, grew the foreign exchange reserve to over $60 billion with a robust excess crude account, the succeeding governments, despite continuous increases in the world oil prices over and above $100 per barrel and corresponding increase in oil revenue to the country, we were back in the international credit market with vengeance raking up small and big loans from international financial institutions and private markets. Projects that can be paid off easily from growing oil earnings were contracted as loans.
When federal government announced recently the expected budget deficit of over N5 trillion that would accrue at the end of this year, what came to mind was that the economic managers were already looking at credit sources for financing the deficit instead of re-priotising projects and programmes in terms of scale of preference and chucking off those projects at the lower rung of the scale. If a budget is seen as a proposal rather than fait accompli, then there is need to revise the programmes and projects in line with new financial reality rather than borrowing money to meet up. In the revised budget presented in June, the National Assembly (NASS) increased the proposed budget submitted by the executive even though the economy was already in precarious revenue situation arising from the effects of the current coronavirus pandemic. This was a wrong action but understandable because the members of NASS knew that attempt to cut the budget could affect their personal projects and emolument which they would not want to risk. Leadership in Nigeria is not about personal sacrifice but inflicting collective pains on the citizens or how do we explain the case of looting in the Niger Delta Development Commission (NDDC)?
Of course, the Nigerian case is not different from other African countries and the result is the continent-wide growing poverty because the little or insufficient revenue that should be used for providing basic needs for the citizens are employed in servicing avoidable debts. Most African countries do not study credit market before going into borrowing. They all see debt acquisition as a way of life for developing countries. They are more concerned with availability rather than cost of credit. They are all virtually addicted to obtaining external loans which in most cases are more beneficial to the lenders and loan facilitators (banks and government officials) than borrowers. There is the need some circumspect in loan seeking. The acquired loans are used to buy equipment and machinery produced by the lenders or their friends and the money thus circulates among the developed countries, primarily generating employment among them, though secondary employment is generated at the borrowers’ countries when programmes are eventually being implemented. The credit or loan facilitators also have their commission while the loan beneficiary has equipment and machinery.
Interest rates on domestic loans in developed and emerging countries, usually the lenders, hardly reach over five per cent and interest rates on lending among these countries take queue from the domestic interest rate. However, when it comes to lending to developing countries, it must involve a third party who is to negotiate the interest rate as some costs. They make everything look like a business and as if they are offering some help!
Of course, it is a business but the action of borrowing is mutually beneficial and so no special help is being rendered to the borrower. Money that is not borrowed becomes idle fund earning no returns and not beneficial to the owner of such surplus fund (banks) while the borrower is also denied of the services to be rendered by the equipment or activities to be implemented with the loan. Once the borrowers realise there is no special favour being rendered, they should scrutinize conditions for loans. This is a competitive financially globalized world and many banks around the world have surplus funds to give out at competitive interest rates.
There is the need to be less desperate about acquiring external loans; the need to wash ourselves off the loan addiction syndrome and the request for external loan should be in extreme need conditions. Thus, it is only when the credit market has been evaluated comprehensively that the economic managers pick one with the most favourable conditionality. Actually, I have a hunch that if the Debt Management Office (DMO) decides to raise foreign denominated currency in the Nigerian market today, it will be oversubscribed! We can recall that money found in underground flats in some places includes huge sums of foreign currencies and there are many yet to be detected hidden treasuries in the country. So why do we have to sell our sovereignty to China or any country for that matter for funds that few Nigerians can supply from their war chest at very low interest rates? While the NASS is evaluating the conditions for already contracted foreign loans, let the DMO test waters for local “dollar loans”!
Tella is professor of Economics, Olabisi Onabanjo University, Ago-Iwoye, Ogun State.