The Debt Management Office (DMO) has defended the intended external borrowing of $29.96 billion, through the Director General of the agency, Dr. Abraham Nwankwo.
The President Muhammadu Buhari recently went to the National Assembly seeking approval for the $29.9 billion External Borrowing for a Rolling Plan.
A breakdown of the $29.96 billion borrowing, which would span a period of three years, shows that $11.274 billion would be spent on certain proposed projects and programmes while $10.686 billion would be used to execute special national infrastructure projects and Eurobonds of $4.5 billion, with the remaining $3.5 billion to be applied as the federal government budget support.
Specifically, out of the $29.96, 61.2 per cent would go towards infrastructure projects comprising the Mambila hydro-electric power plant – $4.8 billion; railway modernization coastal project (Calabar-Port Harcourt-Onne Deep Seaport segment) – $3.5 billion; Abuja mass rail transit project (Phase 2) – $1.6 billion; Lagos-Kano railway modernization project (Lagos-Ibadan segment double track) – $1.3 billion; Lagos-Kano railway modernization project (Kano-Kaduna segment double track) – $1.1 billion; and others – $6 billion.
Speaking on Channels Television’s current affairs programme, Sunrise Daily, Nwankwo explained that the loans would help in addressing the biting infrastructure deficit in the country.
“When you are in this kind of economic situation, you have to decide where you want to start addressing the problem. You then come to the conclusion that the most critical point to start is to deal with the infrastructure problem.
“If you deal with infrastructure problem, the cost of power will be lower, the cost of transportation will be lower, and the cost of most other services will be lower,” he said.
According to him, one of the features of the proposed borrowing plan is the low concessionary nature of most of the loans, with an average interest rate of 1.5 per cent.
He says the arrangement, differs from previous loan arrangements with the Paris Club of creditors, which came with floating interest rates as high as 18 per cent.
He also explained that the facilities would help to revive infrastructure like the railways which would ease the movement of heavy goods across the country.
He argued that tackling the infrastructure deficit would force down the cost of goods and services in the long run, explaining that the development would have a significant impact on price levels in the economy.
“So the way to go about it is that you have adequate infrastructure — power, road, transportation, ICT. All these make the cost of production in the economy much lower and when this happens, the cost of goods and services will be lower and then inflation will start coming down.
“And if inflation comes down, the monetary policy rate will be lower and this will translate to a lower lending rate. That is the sequence,” Nwankwo explained.
He also dismissed the misconception that the debt sustainability report released by his agency recently had advised the federal government not to borrow in excess of $22 billion over the three-year period, stating that this was misrepresented by a newspaper report.
He said what the debt sustainability report published by the DMO said was that the government should not borrow more than $22 billion per annum, thus giving it sufficient headroom for the medium-term $29.96 billion external borrowing plan.