Amidst worries that the Nigerian government is already over-borrowed, as seen from the quantum of its annual budget committed to debt servicing on an annual basis, the country’s Senate, on Wednesday, gave its blessing for yet another US$2.6bn loans for the Federal and State governments finance what it tagged “critical projects.”
A statement by Ezrel Tabiowo, Special Assistant (Press) to President of the Senate, said the amount, is 47.27% of the $5.5bn external borrowing request sent to the National Assembly by President Muhammadu Buhari in May last year.
The approval, he said, followed the consideration of a report by the Committee on Local and Foreign Debts during plenary, with the Chairman, Clifford Ordia, explaining that €995m is earmarked for priority federal projects, while US$1.5bn would be disbursed to the 36 state governments for the same purpose.
Specifically, he said, a total of six indigenous assembly plants, one in each geo-political zone have been identified and would be rehabilitated to assemble completely knocked down CKD mechanization farm machinery and equipments to be imported from Brazil.
According to him, the CKD mechanization to be imported would, specifically, be adapted for local conditions with job creation opportunities for citizens.
He emphasized that the loan is intended to deliver technological package to small holder farmers for a fee through the establishment is service centres in each of the 774 Local Governments of the Federation to be owned and run by private business entities.
While $1.5bn of the total sum approved is to be sourced from the World Bank; €671m is expected from the Export-Import Bank of Brazil; and another €324m from the Deutsche Bank of Germany.
The tenor/moratorium of the loan being sought from the World Bank is 25 years at an interest rate of 2.45% per annum; while that from the Export-Import Bank of Brazil is 15 years at an interest rate of 2.935%. That of the Deutsche Bank of Germany for seven years at 2.87% interest rate.
Buhari had in his letter dated May 19, 2020, sought the approval of the National Assembly to secure a foreign loan to the tune of $5.513 billion to finance deficits contained in the 2020 budget.
According to President Buhari, out of the total $5.513bn loan request, $3.4bn would be sourced from the International Monetary Fund; $1.5bn from the World Bank; $500m from the African Development Bank; and $113m from the Islamic Development Bank.
However, Senator Ordia (PDP, Edo Central), while giving a breakdown on the application of the sum approved National Assembly, disclosed that €995 million (Euros) would be deployed to finance priority projects to address the impact of the COVID-19 pandemic and to improve Nigeria’s food security through the mechanization of agriculture and Agro processing in Nigeria.
On providing fiscal support to states across the federation, Ordia said $750m from the World Bank would go into to financing States Fiscal Transparency, Accountability and Sustainability (SFTAS) Programme in all states of the federation and the Federal Capital Territory.
He noted that the said financing was approved by the National Assembly in June 2020 as part of the $1.5 billion Development Policy Financing to part finance the Federal government’s 2020 revised budget deficit.
According to him, the Local and Foreign Debt Committee found that in October 2020, following the continuous economic disruptions occasioned by the pandemic and in view of the need to consolidate on and sustain the gains of the program and to increase states fiscal capacity to respond to the COVID-19 crises.
He added, “the Committee found that the Federal objective of the restructuring is to support states to introduce measures to further mitigate fiscal shocks by introducing COVID-19 responsive Disbursement Linked Indicators at state level, to match the fiscal measures at the federal level.”
“The Committee notes that it is based on the above restructuring, that additional financing in the sum of $750 million is now required for the COVID-19 response of Nigeria”, Ordia said.
The lawmaker explained that another $750 million (USD) would be used to finance the the COVID-19 Action recovery and economic stimulus program to support efforts by state governments to protect livelihoods, ensure food security and stimulate economic activity.
Contributing, Senator Solomon Olamilekan (APC, Lagos West) said going ahead to approve the loan request would demonstrate the proactiveness by the National Assembly to insulate the Nigerian economy against a possible decline.
“Embarking on this borrowing plan as explained by the Chairman of the Committee shows that we are being proactive”, he said.
On his part, Deputy President of the Senate, Ovie Omo-Agege (APC, Delta Central) while supporting the report,wondered if the Committee in coming up with its recommendations is privy to the terms and conditions of the loan agreement.
While raising viability concerns about projects to be financed at the state level, , Senator Betty Apiafi demanded to know if an arrangement was in place for maintenance of the CKD farming machineries to be imported by the Federal Government from Brazil.
Responding to observations and concerns raised by his colleagues, Senator Ordia explained that the documentation of any loan request can only take place after the National Assembly gives its approval to the external borrowing request before it.
“Loan documentation actually starts taking place when the National Assembly has approved, because if the National Assembly is not able to approve, then there’s no need to continue with final negotiation and documentation.
On the issue of maintenance of farming machineries and equipments, the lawmaker explained that there are provisions for such.
In his remarks, the Senate President, Ahmad Lawan, said, “the comment by the DSP (Ovie Omo-Agege), in my understanding is to say you would be given the terms and conditions of the loan when the request is to be processed by your committee.
“My understanding is: this is one step that is necessary, because it is not enough just to look at the annual rate at which the loan is granted, there could be some other issues behind.
“I want to imagine that you did that, because that should be the basis for some of your recommendations. It is not enough to base the recommendations on the interest rate alone, or the moratorium or tenor. I want to imagine that that was what your committee did.”
Lawan further advised the Committee to liaise with the Debt Management Office for updates on the total loans accessed by the Federal Government.
“I think you will take an additional step, and that step is to request the DMO to update you quarterly or whatever, so that you know exactly as a committee where we are in terms of what we have approved and what you have accessed.
“It is very important, it is not enough for us to approve, but we should also know when we are able to access such loans”, Lawan said.
