‘Future generations must get the benefits of today’s borrowing’ – Hon Adeyinka Ajayi
Hon. Adeyinka Ajayi, chairman, House of Representatives Committee on Aids, Loans and Debts Management and a ranking member of the ruling party in Osun State, in this interview with KEHINDE AKINTOLA, speaks on the $500 million Eurobond approved for the Presidency, the nation’s debt status, bailout to states and the $29 billion 2017-2019 borrowing plan for Nigeria. Excerpts:
Kindly give insight into the status of the Nigeria’s debt portfolio as a way of educating the public?
It is an issue that agitates the minds of everybody. Let me break it down to a layman’s level. When you say debt is within threshold, it means among nations of the world, you set targets or limits for yourself. That limit is usually domesticated against your gross domestic product. You don’t want your debt to exceed a certain percentage of your gross domestic product (GDP). For our peer group; countries that have similar characteristics like Nigeria; we are allowed to have a ratio of not less than 40 percent of the GDP. In other words, the volume of our domestic debt is not supposed to exceed 40 percent of our GDP. Having noted that figure; the Debt Management Office (DMO) in Nigeria has set a limit for Nigeria (self-imposed limit) of 25 percent, despite the fact that the acceptable limit is 40 percent. Nigeria sets a lower bar. We said we want to pull ourselves back if we hit 25 percent of our GDP. Now we at the moment just hit 20 percent. So, in terms of ratio, we are doing very well. But the question is if the ratio looks good, do we have the same effect; do our bank balances show that we are borrowing and spending well? When there is growth, you expect corresponding receipts: if an economy is active there is commerce, industry, employment and you expect your tax revenue to increase. There are several ratios that lend a lie to the effect that we are still within threshold of borrowing and that has to do with our tax revenue to GDP ratio. The tax is supposed to increase as businesses are doing well; when we are gainfully employed, we pay more taxes. When the companies are doing well, they pay more taxes. But you noticed that whether we are growing or not, our tax remains stagnant. So, it shows that we are not doing well in terms of collecting taxes. Our increase in taxes is just about the right number of people not paying the right number of taxes. That is really abnormal. The ministry of finance recently released some statistics that less than a 100 Nigerians pay taxes in excess of 30 million naira. We are a country of more than 180 million people and less than 100 people are paying tax in excess of N30 million. So, if you have individuals in Nigeria who live the kind of lifestyle that we know and we generate revenue to sustain that lifestyle but only 100 pay taxes, I think there is something wrong. Therefore, with this picture, I would say we are not doing well in terms of debt structure. So for the layman to understand, although the figures look good, we still need to evolve new strategies for our debt profile.
Why and what are we borrowing for? Are we borrowing to consume or to pay salaries? Are we borrowing to fuel our cars or are we borrowing to provide social services, which do not pay for themselves? Are we borrowing to put pipe borne water in our communities? Or is it for improved health services? Is it for roads so that we can move freely? Are we developing infrastructure? The answer is that this government is taking this issue very seriously and that is why there is an increase in the budget; we have reached a N7 trillion mark in our budget. Everybody wonders where this money is coming and it is coming from borrowing. The job that the legislature and media have to do is to ensure that we do not borrow to pay salaries because that is not productive. We got to borrow to keep the economy working; to make the future generation get the benefits. When we get to other countries, we ride on good roads and good trains, which are products of good borrowing. These are products of previous borrowings and the generation paying for it now is the one enjoying the benefits. The payment for the construction of most of the edifices we see in these countries was not completed in those days; it is being paid for today, but the benefits are there for the present generation to enjoy. These are type of legacies that we should strive to leave in Nigeria. So, we should borrow to make life comfortable for those who will pay the money tomorrow.
The Sovereign Wealth Fund (SWF) has been controversial and now we are talking about bailout funds. Are the funds from the SWF?
The SWF is a concept of best practices- not eating with your ten fingers but keeping some money for the future. The SWF was a middle course ground because there was this certain contention about setting a benchmark for crude oil when the oil was selling at a higher price. Who will be in charge of the difference? The constitution of the Federal Republic of Nigeria says every penny accruing to Nigeria goes into the Consolidated Revenue Fund (CRF), from where appropriation is done by Parliament. So, why do you have a budget that says a barrel of crude oil that is sold at $50 is benchmarked at $40, so $10 is outside the purview of the parliament? It was a middle course ground that says that this money, that was termed excess crude account- which was through all intents and purposes was moved into an account that could be seen by all- we know that $40 out of 50 is going into CRF, while the balance of $10 is going into the Sovereign Wealth Fund. In other words, we were saving in investment for the future. But the volume of money you have in the SWF can pay back the interest on borrowing and foreign lending institutions can use the strength of that to rate your country’s credit worthiness. That is what the Sovereign Wealth Fund is all about.
The bailout fund is a throwback from the Paris Club debt negotiation. Simply stated, states and federal government jointly owed bilateral and multilateral agencies several bails of money. For example, the amount due to Abia is different from the one due to Sokoto etc., hence in negotiating that deal; the Federal Government took money from the federation and paid off that agreement. Now several of the states came forward and said if for example, state A, was owing a $100 million, at the time of that negotiation and I was only owing 30 million, the quantity of my contribution should be one-fifth of what the other state is paying instead of applying it flat- that is what is called the Paris Club pay out. It is a refund of monies that had been over paid from monies owed.
But the question is, have we at any time sat down to compute how much each state was owning or the interest accruing to the state; how much was paid out on behalf of particular states and how are we going to settle it? Those are the controversies coming out of the bail out. Although, we have looked at allegations bordering on misappropriation of bailout funds from different quarters, but I believe as a legislature that the oversight of those monies lies within the purview of state assemblies, because the monies belongs to those states and they appropriate for them.
But the question is, have we at any time sat down to compute how much each state was owning or the interest accruing to the state; how much was paid out on behalf of particular states and how are we going to settle it? Those are the controversies coming out of the bail out. Although, we have looked at allegations bordering on misappropriation of bailout funds from different quarters, but I believe as a legislature that the oversight of those monies lies within the purview of state assemblies, because the monies belongs to those states and they appropriate for them.
The House approved a $500 million Eurobond for the Federal Government. Why that decision? Again, you submitted that borrowing to pay salaries was not the best but that is the practice here for some time and virtually every state in the country owes salaries. What is the way out?
It is true that the committee on aids, loans and debt management last week recommended that a $500 million Eurobond be approved for the Federal government. The 2016 Budget had approval of N1.8 trillion borrowing to meet the deficit in our budget; approved by the National Assembly. N1.2 trillion was to be borrowed domestically. N635 billion was supposed to be borrowed externally from international capital market.
As at last week Wednesday, Nigeria had only accessed $1.6 billion to $600 million from AfDB, and 1 million USD from international capital market. If you convert that at the official rate to naira, you will see that there is still a window for foreign borrowing to fund the deficit in the 2016 budget. Having seen the reaction of the international community, despite the recession and other challenges in our country, we still had the international community threw $7 billion at Nigeria. We only advertised $1 billion. We had offers of $7 billion. So, it tells us that the international community believed in the potential of Nigeria; believed in the direction of the administration in power in the country and therefore they were willing to throw much more than we were asking for. Now, the problem we had was the issue of rate. Setting out in our previous outing in 2016, the rate of interest at that time was about five percent. So, at this point, giving the challenges we were having as a country, we have adjusted our expectations upfront, so we are looking and 6.5 and 6.2 interest rate.
But the market, having put so much money in our hands wanted slightly higher rates than we envisaged. And based on this, we still have a window to borrow. It is in line with the 2016 appropriation. It is just that the law requires that every outing we make, we must come to the parliament to get a resolution. Despite the fact that we have allowed the $635 billion to be borrowed, we still have a balance of approximately 400, so it is not a new application. It was just to reinforce the approval that had been given in the 2016 Act.
As at last week Wednesday, Nigeria had only accessed $1.6 billion to $600 million from AfDB, and 1 million USD from international capital market. If you convert that at the official rate to naira, you will see that there is still a window for foreign borrowing to fund the deficit in the 2016 budget. Having seen the reaction of the international community, despite the recession and other challenges in our country, we still had the international community threw $7 billion at Nigeria. We only advertised $1 billion. We had offers of $7 billion. So, it tells us that the international community believed in the potential of Nigeria; believed in the direction of the administration in power in the country and therefore they were willing to throw much more than we were asking for. Now, the problem we had was the issue of rate. Setting out in our previous outing in 2016, the rate of interest at that time was about five percent. So, at this point, giving the challenges we were having as a country, we have adjusted our expectations upfront, so we are looking and 6.5 and 6.2 interest rate.
But the market, having put so much money in our hands wanted slightly higher rates than we envisaged. And based on this, we still have a window to borrow. It is in line with the 2016 appropriation. It is just that the law requires that every outing we make, we must come to the parliament to get a resolution. Despite the fact that we have allowed the $635 billion to be borrowed, we still have a balance of approximately 400, so it is not a new application. It was just to reinforce the approval that had been given in the 2016 Act.
Now about your question on borrowing to pay salaries, the Fiscal Responsibility Act, 2007 clearly spelt out criteria for borrowing in Nigeria. The law clearly states that you can only borrow for capital and human development. Now, you may say it is semantics, but yet agree with some people who say that human development is wide enough to capture payment of salaries. So, if you have a situation where these states owe, they can be supported to pay through borrowing. However, the bailout that we have been talking about came in three fashions. The first one is not a bailout; it was dividend accruable to federal government and the states from the Liquified Natural Gas (LNG) project. These are funds belonging to the states and Federal Government that were not given to the states. This administration came and said, you have this money here, it is your share; you are owing salaries and we will release this money to you so that you can pay salaries. So, it is not a bailout because this money belongs to those states. The second component of the so-called bailout is the Federal Government playing the big brother. The Federal Government invited all the domestic financial institutions and said from the irrevocable standing payment orders (ISPO) that the Federal Government has, there is so much that is going out as federal allocation that is not getting to the states. We are not saying you are not due to the monies borrowed from you by these states but the times are hard. You borrowed money to these states at double digit interest rates; you got to soft pedaled on these interest rates and bring it down to single digit. And then on the monthly repayments, instead of deducting N1 billion at source from allocation, bring it down to 200 million and increase the lifespan of the loans. Most of these loans were short term loans but increase it to five to seven years. Therefore, the Federal Government played the big brother and guaranteed the payment of the loans. So, it is not bailout but a big brother wielding his influence to ensure that salaries could be paid. It is third term component that is called bailout. Despite all these efforts, how much is the outstanding debt of these states? If you would meet up certain fiscal measures; if you will meet the DMO, enact a law on due diligence in your state etc; if you meet the conditions, we would lend you this amount of money that you will pay back. It is bailout because it is not money that you expected or is due to you? States must pay back these monies. But you can interpret our laws the way you want. So, when you say human development, it will be difficult to remove welfare.
Why has the House not been able to attend to the $29 billion loan request from the President after months of its presentation?
Remember that when that request came, there was a resolution that the details be forwarded to the parliament before action could be taken on the $29 billion loan. So, we are waiting for the Presidency to provide those details. And remember that the borrowing was not confined to 2017 but it came with the 2017 to 2019 MTEF. The borrowing is a medium term borrowing, it’s a three year borrowing plan intended to cover 2017, 2018 and 2019. So it’s not a proposal to borrow $29 billion for 2017 financial year, it’s a medium term borrowing plan. So we are waiting for the details. As soon as the details are made available, it was the various Committees of the House that have the oversight duties to look into the request that will do so and so proper recommendations will be made to the House.
You sponsored a motion raising security concerns on the Kaduna Airport and the House resolved that the issue be investigated. Don’t you think this is an indictment on the House since it approved the closure of Abuja Airport?
I’m sure you are aware of the sentiments that played out in the movement of flights from Abuja Airport to Kaduna. The sentiments and the way it was canvassed on the floor of the House, some members felt there were some motives behind not wanting to develop other airports and bringing them to international standard. It was against these sentiments, that the House at that time took the decision to approve the movement on condition that facilities at that airport be brought to international standard. It was not a blanket approval; it was conditional that facilities be upgraded. Even if the motion today, came up two days to the approval of the relocation, I would have still stood for the motion. I said that because, accident happens at any point in time. As we speak now, (God forbid), an aircraft can drop from the sky, so, the fact that we have expended three weeks does not mean we should be carefree about what happens in the remaining period. The purpose of the motion is not to indict the House but it is to say that we have received pockets of allegations on Kaduna International Airport that can compromise safety; and all the motion did was to ask the NCAA to correct those anomalies if they actually exist. It is not an indictment on parliament. What we are saying is that we have allegation that haulage tankers drive to the ramp at Kaduna Airport just because they do not have the right nozzle to drop the fuel to the aircraft. This is not the procedure that can ensure safety.