Diaspora dollar bond: Matters arising

On June 7, 2017, the Debt Management Office (DMO) issued a five-year US$300 million Diaspora Bond at a coupon rate of 5.625 percent.

The bond was “targeted principally at Nigerian retail investors abroad, to provide them with the opportunity to contribute to national development…(thereby) opening a new source of financing for the Federal Government of Nigeria for funding projects for the development of the country”.

This Diaspora and other dollar bonds raise a number of issues concerning proper management of the economy.

Firstly, the DMO was faulted for having been unduly hasty by issuing the Diaspora bond without prior approval. But in a statement dated 12/2/18, the DMO claimed that it had obtained the approval of the National Assembly beforehand.

However, considering the fact that the bond formed part of the external borrowing plan of $3.5 billion specified in the 2017 Appropriation Act, which did not receive presidential assent until 12/6/17, did the DMO not jump the gun by five days on this matter?

Secondly, any borrowing by FG from Nigerians regardless of where they are on the globe amounts to official relegation of the national currency in violation of the laws of the land.

In this connection, subscription to Eurobonds by Nigerians and Nigeria-based entities borders on renunciation of the naira. As long as the naira is made to yield primacy to an alien currency, the national economy will remain in the doldrums.

Thirdly, Nigerians living abroad neither waited for nor do require the Diaspora bond to contribute to national development.

For example, when government petroleum revenue dived to $24.7 billion (NEITI figure) in 2015, the World Bank put remittances made spontaneously by Nigerians abroad at $20.8 billion, thus making remittances the second highest source of export earnings that year.

The World Bank projected remittances to reach $22 billion in 2017.

Hence the Diaspora bond that unwarrantedly injected annual cost of 5.625 percent interest in foreign currency payable from the federal kitty represented an insignificant 1.4 percent of unprompted and interest-free remittances.

But sadly, the contribution of the remittances remains unrealised potential because of the concerted mismanagement of the country’s ample forex resources by the trio of Federal Ministry of Finance (FMF), Central Bank of Nigeria and DMO.

Fourthly, in the earlier noted rebuttal, the DMO even professed to being “a responsible agency of government that complies in full with the provisions of all relevant legislations, guidelines and policies on public debt”.

The pertinent legislations on public debt are the CBN Act (including its applicable versions reaching back to the CBN Ordinance 1958) and the yearly Appropriation Act.

A little historical context? Government has refused to abide by both Acts after the demise of the Bretton Woods system of fixed exchange rates 47 long years ago.

To wit, government since 1971 has by word and action become covetous of petroleum dollar accruals to the detriment of the national currency.

So government unconventionally withholds Federation Account dollar allocations while simultaneously substituting for them pro rata CBN deficit (read debt) financing made up of freshly printed naira funds.

The injection into the system of the unsolicited debt funds causes the excess liquidity and inflationary pressures that have persistently plagued the economy beginning from the 1970s till the present day.

Acting the script of the erstwhile London and Paris clubs of creditor nations, the double-dealing IMF/World Bank exploited the situation by seconding to the FMF an economic hit-woman with the brief of initiating the DMO. The DMO was designed to implement two measures whose poisonous economic impact would diffuse slowly.

One, in the guise of removing some excess liquidity funds and for the expressed reason of merely deepening the public debt, the DMO has beginning from 2003 heaped up Domestic Debt Stock (FGN only) (DDS) of N12 trillion as at 30/6/17.

Notwithstanding any tag subsequently affixed to its various tranches, the DDS is made up of mopped excess liquidity funds withdrawn from circulation for sterilisation.

The DDS therefore represents a spurious debt contrived by the IMF/WB purposely to drain government revenue and impede economic development in contradistinction to genuine treasury bill-related public debt which, under the Appropriation Act and the CBN Act, should raise funds to meet approved government expenditure to foster economic progress.

Two, the economic hit-woman, after becoming minister, instituted the second measure through issuance of Eurobond in 2011 because of its purported low cost and to set a benchmark for firms to borrow from the international capital market.

The Eurobond was unnecessary because government realised over $68 billion (NEITI figure) as petroleum revenue that year. The IMF/WB take a long-term view when they set traps.

Fifthly, the Buhari administration’s adoption of dollar bonds to secure international loans was similarly adduced to their purported low-cost and long-tenure profile relative to high-cost and short-term domestic debt.

The FMF intends to issue a range of Eurobonds “encompassing 5-year, 10-year, 12-year, 15-year, 20-year and 30-year bonds, giving investors a full basket of options to participate in.”

This actually duplicates existing fake naira bonds. In fact, far from being entirely short-tenure as FMF falsely indicates, the DMO lists on its website debt categories ranging from 90-day treasury bills to 20-year bonds (for example, see Table 5.5 FGN Bonds Issued, 2016).

And with the benefit of hindsight, the trio of FMF/CBN/DMO without rhyme or reason may elongate any category of the fake domestic debt to a 30-year bond at a coupon rate that catches their fancy.

Sixthly, the announced prices of Eurobonds issued or which are being offered since 2017 range from 5.625 percent to 7.875 percent. (Suppose the DDS of N12 trillion as at June 2017 is refinanced with Eurobonds at the 2017 Appropriation Act exchange rate of N305/$1, the FG will be saddled with $39 billion debt in addition to the bona fide external debt.

The designation of domestic debt in alien currency is strange and practically renounces our naira-based economy contrary to the laws of the land). Note also that the set Eurobond rates are not cheap relative to lending rates obtainable in Western economies and so cannot serve as competitive benchmarks for ‘corporates’ wishing to borrow from the international capital market.

In effect, the IMF/WB-suborned Eurobond loan option for refinancing domestic debt is a dual currency scheme intended to accord Western interests and their local accomplices priority access to the country’s forex earnings at higher interest rates than in Western economies while the naira would sink to nether depths and succumb to widespread dollarisation. A veritable enslaved economy indeed!

Furthermore, the IMF/WB have doubtless succeeded in contemptuously showing Nigerian leaders the end of the road where relegation of national currency leads.

Having mortgaged the country’s future forex earnings at the bidding of the crafty IMF/WB, the now self-evidently irresponsible ministry and agencies of FMF/CBN/DMO have on their hands unproductive economy swarming with mass unemployment, rising absolute poverty level of over 70 percent and near-zero economic growth rate whereas the country needs double digit growth rate over an extended period.

Next, this newspaper has since 2001 consistently harped on the solution to the country’s gross economic underperformance but to no avail. Undeterred and pursuant to uplifting the economy, TheGuardian on October 23, 2017, carried the leader titled “implementing the budget as legislated”.

It was shown therein that through faithful implementation of the CBN Act and the Appropriation Act, the country would witness inflation falling to within a range of 0-3 percent, the Appropriation Act exchange rate floating in a corridor of +/-3 percent, lending rates dropping to within 5-7 percent band across the board and genuine treasury bill-funded national domestic debt rate settling on 4 percent or lower.

These indices define the economic production environment for irreversible and sustainable rapid economic growth and development.

The Nigerian economy must be salvaged.