Debt burden, infrastructure gap and PPP

According to the Debt Management Office, (DMO), Nigeria’s public debt manager, the debt portfolio has grown in leaps and bounds from N7.744 trillion in 2011, to an alarming N16.3 trillion as at the end of June this year.

By the time the agency computes the end of year commitments, it may be reaching a new high, given the sharp drop in the Naira’s value in the last six months when the Central Bank of Nigeria (CBN), the lender of last resort, floated the exchange rate. The development has since seen the Naira tumble from the then N197/$1 to N305.5 /$1 at interbank market and about N485/$1 at the parallel market

Current debt stock covered the Federal Government’s two-year spending plans, if this year’s N6.06 trillion budget and 2017 proposed N7.2 trillion are put into consideration.

The Nigeria public debt stock comprise Federal Government and states’ foreign debt commitments as well as Federal Government’s domestic debts obligations, which it contracts through bond and Treasury Bills issuances.

Besides that the proceeds of these expensive loans are most times misapplied for consumption purposes to the detriment of infrastructure development in the country, they now constitute the highest performing item on the Federal Government’s budget yearly, above capital votes, which is supposed to provide infrastructure development to close the gap.

For instance, last year, the domestic debt component alone, according to DMO in its 2015 Annual Report- the FGN’s domestic debt service as at end of December 2015, was N1,018.13 billion compared to N865.81 billion in the corresponding period of 2014. This represented an increase of N152.32 billion or 17.59 per cent.

This amount comprised principal repayment of N25billion and interest payment of N993.13 billion. By instrument-type, FGN bonds debt service accounted for 62.41 per cent of the total debt service payment, while payments in respect of the Nigerian Treasury Bills (NTBs), and Treasury Bonds were 31.83 per cent and 5.76 per cent, respectively.

It further declared that the borrowing trend analysis shows a continued rise in FGN’s domestic debt service payments from 2011 to 2015, which was attributed to the increase in domestic debt stock, as well as higher interest rates, leading to the rise in domestic borrowing.

Year on year, Nigeria continues to contract new loans at very high expense and unfavourable condition, particularly the concessional ones from the multilateral agencies that offer the loans.

Again, for most of these expensive loans, you can hardly point at a project with which the borrowed resources were deployed to justify the servicing and high interest rate payments on them.

This development has continued unabated even as Nigeria has developed a robust Public Private Partnership (PPP) institutional framework and the Infrastructure Concession and Regulatory Agency (ICRC) to drive infrastructure development.

Also, PPP is considered cheap compared to sole public undertakings, as it has been proven overtime that Government’s cost of projects execution is always over three times the actual cost, as a result of over-invoicing and kick-backs.

The Director–General of the ICRC, Mallam Aminu Diko, in a recent chat with The Guardian, reiterated that most development financing institutions, like the World Bank and African Development Bank, insist that efficient infrastructure services remained the bedrock of any meaningful economic development.

Advanced countries in Europe, America and the Asian continents were able to attain their enviable level of progress because due attention is given to the development of functional infrastructure.

They also contend that it is important to note that the real sector of any growing economy depends basically on efficient infrastructure services such as good roads, constant power supply, and efficient rail transportation network to effectively contribute to the economic life of the nation.

The standard of living of a country’s citizens can only witness true improvement where there are effective healthcare services, functional education infrastructure like good schools, hotels and hygienic environment. Portable water is also basic to the healthy living of the citizenry.

Today, Nigeria is rated among nations with high infrastructure deficits. The economy is persistently weakened by numerous constraints, which inhibit the nation’s productive capacity and its ability to create jobs and reduce poverty.

Indeed, the plunge in commodity prices, especially crude oil, had led to a sharp fall in the nation’s revenue, and this has challenged the capacity of Nigeria and oil exporting countries to meet set targets, a situation that called for urgent economic diversification and to leverage the huge benefits of PPPs in addressing the infrastructure gaps.
According to the International Finance Corporation (IFC), developing countries need about $2 trillion yearly to modernise infrastructure and at least $100 billion annually to tackle climate change.

Such finances far exceed the available resources of individual governments or institutions.

The IFC further noted that PPPs can make a significant difference in the quest for infrastructure growth in developing countries, as they have the potential to unlock much more than finances, but can also bring in expertise and efficiency, and helping governments ensure that resources are wisely allocated in addressing the most urgent challenges of development.

Against this backdrop, overnment established ICRC in November, 2008 and also launched the National Policy on PPP, which was approved by the Federal Executive Council in April 2009.

Indeed, it is globally acknowledged that the public and private sectors can work together in a new and innovative ways to deliver public services.