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Adeosun: Nigeria’s borrowing is sustainable, well managed

Nigeria’s finance minister, Mrs. Kemi Adeosun, in an interview with selected Journalists, insists that the borrowing pattern of current administration is sustainable and devoted to developing capital projects and infrastructure. Excerpts:


What has changed since the current administration took over in May 2015 and now?

A lot has changed, but the principal thing that has changed is that Nigeria has been on a very difficult transition from high oil prices to lower oil prices. We went through a very difficult recession. What has significantly changed is that the direction of growth, which we inherited and was actually declining, has been reversed. It is now moving in a positive direction. Secondly, Nigeria has realised that we cannot continue to focus on oil. We are trying to change the direction of the economy away from oil.


There is much more focus now on agriculture, there is much more focus on Made-in-Nigeria products. There is greater awareness of what it really takes to drive the economy forward. Over all, focus has been to invest massively in infrastructure to make sure we get the economy growing. So far, we have pumped over N2.5 trillion into infrastructure, especially capital projects, between 2015 and 2017.


If you move round the country, you will see work is on-going: on roads, power, bridges and other areas. These are really important building blocks for the Nigerian economy. For us to really become competitive, we have to have good transportation links. It is very important for the movement of goods across the country efficiently and readily.


Look at the road sector, when we came in, it was N19 billion that was invested in the sector in 2015. And in 2016, we invested N307 billion on roads. So, there has been a new step, which is changing our capital projects. This is the foundation we have identified with more opportunities. All these opportunities are not limited to oil, but spread across the nation. That is why you see projects spread across the nation. For me, that has been one of the biggest changes.


Will you say ordinary Nigerians have fared better, compared to May 2015 when this administration came on board?

Absolutely yes, all the investments are for the ordinary Nigerians, who are long-term beneficiaries. If we fix our roads, the people who will benefit are you and I. If we fix our power, those who will benefit are you and I. If we fix the rail, it is you and I that will benefit. The jobs that are being created as a result of these investments are for Nigerians.


The way we measure capital for growth (capital formation) is higher now than it was in the past. These are building blocks. It is like building a house; you have to build the house first before you begin to fix the window and roofs. It is going to trickle down as we move forward, and begin to reflect in the lifestyles and prospects of Nigerians.


This administration promised to remove all the distortions and subsidies, but today, oil marketers are still demanding subsidy payment…

The subsidy they are demanding is actually the subsidy arrears we inherited from the previous administration. We are not paying subsidy in the old sense, the way subsidy was paid to oil marketers. So, the subsidy they are clamouring for is what they were owed before the present administration came in. But we are negotiating with them and we have to also make sure our focus remain on our capital projects. That is really our priority. But then, they are clamouring for government to give them attention and pay them subsidy arrears owed them before we came on board.

It appears government is borrowing to run the economy, are you not worried that this may lead us back to a debt trap?

Absolutely no. What we are borrowing for is what you have to look at. If you are borrowing to pay salaries, travels, do training or in a wasteful venture, then you have to be worried. But if you are borrowing for long term infrastructure, those are the investments that allow businesses to thrive. You cannot ask someone to come and fix a factory where you know he cannot move his goods when he produced them.


Such investor won’t come. Infrastructure is a real asset. So, I am not worried about borrowing. Our debt to Gross Domestic Product (GDP) ratio remains very low, one of the lowest in Africa. And we are working very hard to increase our revenue to make sure our debts are serviced adequately.


The alternative when we were in recession was to wait for oil price to recover. That alternative would have created a very long recession had we not taken action then to spend. If we hadn’t done what we did, to borrow and invest in the economy and infrastructure, the recession would have lasted longer than what it eventually was. Besides, the projects we are hugely investing in are long term projects that will provide growth.


How many states have keyed into the Voluntary Assets and Income Declaration Scheme (VAIDS) apart from Lagos, Kaduna and Enugu?

Virtually all the states are involved in one degree or another through the Joint Tax Board. Lagos has been very much involved, given its status; so also the Federal Capital Territory (FCT), Ogun and all other states are involved. Every state is now getting more people into its tax net. We realised that taxes are sustainable source of revenue for government and, government as you know, cannot really depend on oil. We cannot be going to the Federation Account Allocation Committee (FAAC) meeting every month asking how much can we share this month? The focus has shifted from sharing; the focus now is on internally generated revenue (IGR).


There have been calls for the extension of the tax amnesty programme deadline. Is the Federal Government willing to grant the demand for extension of VAIDS?
That is a decision that will be taken by the president because there was an executive order for it. But I think government has given enough time and enough sensitization for tax payers to regularise their tax liabilities. Certainly, the feedback we are getting from people has been encouraging. For me, there is not going to be an extension.


Could you share with us and for the benefit of Nigerians, the role of ‘Project Lighthouse’ in aiding data mining of assets of tax defaulters?

‘Project Lighthouse’ is a unique project of the Federal Ministry of Finance that combines data from federal and state agencies and overseas countries. Prior to its setting up, different types of data were held by different arms of government. So, for the tax authority, it does not get the accurate picture of what someone has.


It is just to pool the data together and support the new approach in assessing peoples’ incomes. What we are doing now is to take a different approach. So, if you look at someone’s assets, automatically you are asking him, what income did you use to buy this asset? You take the initiative away from the tax payer because government now has the data. And when someone says he has N1 million, you can ask him how come you own this huge amount of assets. It makes people to have a rethink.


Why is the Federal Government delaying the prosecution of the suspended Director General of Securities and Exchange Commission (SEC) as recommended by Administrative Panel of Inquiry (API)?

The API has concluded its investigation and made recommendations to Mr. President. I cannot divulge the outcome of the API Report or recommendations.


When you assumed office in 2015, you promised to review import waivers. Why has that not happened?

A lot has been done and more are on-going. We have reviewed the procedures. There are many categories that don’t qualify for import duty waiver. We have improved and made it harder for people to obtain import duty exemption for obvious reasons. On my assumption of office, we found that it was too easy to get an import duty waiver.


We have made it more difficult today, which has resulted in the reduction of numbers of import duty waivers issued. For example, we used to get letters from organisations purporting to be charitable in the area of drugs. They usually write letter to the Federal Ministry of Finance, claiming that they are donating items. We have directed that charitable organisations seeking import duty waivers in the health sector should get accredited and scrutinised by the Federal Ministry of Health. We are also working on automation. We do not have to see everyone face to face, if you are qualified, you should be able to get it promptly and quickly. We are working on the advanced stage that will enable us to digitalize the process. Without too much announcement, we have tightened up the procedures for import duty waivers.


What innovation are you bringing in for project execution?

We have put up a Medium Term Expenditure Framework (MTEF). Now we want to bring in a Medium Term Revenue Framework. Everyone usually list all the projects they want to do and if you do not show how you are going to make the money, funding the projects will be a problem. That is the innovation we are working on. Annually, there will be Medium Term Revenue Framework (MTRF), which will show us the revenues that will fund each budget. If the revenue is lower than expenditure, obviously there is no way you are going to execute all the projects. But I will say we have done very well in capital projects without blowing our trumpet.


For the Ministry of Power, Works and Housing, it was N19.3 billion spent in 2015, N307.4 billion in 2016 and N208.4 billion in N2017. Capital spending on Transport is also remarkable. It was N6.49 billion in 2015, N143.1 billion in 2016 and N133.9 billion in 2017. From where we are coming, it is a huge chunk, taking it from N6 billion to N133 billion. And there are so many agencies like that.


What we are trying to do is to work on the procurement process, so that we do not have idle cash. We have so many ministries that have long term projects for multi-year and, as soon as you give them money, it is gone. There are some other agencies that are slower in their procurements, and sitting on money.


What we are trying to do is to make sure that they only call for money when they are ready to go, so that we can really optimise the available fund genuinely. We have really improved on budget spending. Defence and agriculture funding has improved on every front. There are major investments going on. We need to sustain this.


Some people have expressed worry over the rising debt profile of this administration, which is in excess of N21 trillion. What is your take?

Like I earlier said, I am not worried at all. Our borrowing is sustainable and well managed. Firstly, we took a decision to reflate the economy. Our borrowing is a true reflection of our economy. When your income has gone down, the only way you can go is to borrow. It was a strategic decision. We borrowed and invested heavily in infrastructure and then increased our revenue so that we can pay back the debt. It was a deliberate decision. We looked at our budget in terms of size and increased it from N4 trillion to N7 trillion so that we can focus on developing our infrastructure. It was a very deliberate policy. It was deliberate because if we do not invest in our capital projects, we cannot grow. If all that government does is to pay salaries, we will be running at a loss every year.


So, it was a strategic decision to tie that money on capital projects. One of the differences between our style of borrowing and the previous era when oil prices were at the highest is that, in May 2011, the debt was N2.5 trillion and oil price at that time was $111 to a barrel. By May 2015 when we came in, our debt had risen to N12 trillion.


This means that that period when oil prices were highest, the debt doubled but capital releases were very low. So, if we should be worried about debt accumulation, it should have been that time. And we should be asking, why were capital releases so low and debt doubled when oil price was so high, at over $100 per barrel? Yes, there has been acceleration in debt, but there has also been acceleration in capital releases and capital spending. On what we are doing, if we continue to get these major projects off the ground, they are the growth drivers – power, transport, agriculture and the economy has already started responding to the part of growth.


We will have no problem managing our debts because it is sustainable. As the economy grows, we will get everyone to pay his or her tax so that we will be able to service the debts. If you compare us with any of our neighbouring countries, you will see that we are better than any of our neighbours. We will like to keep it that way. There is no sense having no debt, no road, no power and no growth prospect.


With the kind of young people that we have and the kind of jobs we want to create, we need to build infrastructure and we cannot use oil money alone to fund our debt. We have to be confident and say we are going to invest in our roads, power, transport because with those things we can grow our economy.


Can you explain the difference between Paris Club and the current borrowing plan?

Paris Club borrowing was a variable loan. So, what happened is that we were linked to variable interest rates and that got everybody into trouble. When the London Interbank Offered Rate (LIBOR) rates went up, the rates of those loans also went up too and then many countries, including Nigeria, found it very difficult to repay. But with the Fiscal Responsibility Act and on-going reforms, Nigeria will not take loans with variable interest rate. We take bonds with fixed rate of interest. And so, whether interest rates go up or down, we know what the cost of borrowing is. It is fixed. Much of what we are doing is concessionary loans.


Some of these loans we took are less than one per cent – some were taken at 0.8 per cent and 0.9 per cent. So, what we did was to go for loans with cheap interest rate. The Eurobond aspect is the cheapest. Most of the works we have done is to look at the cheapest markets for concession funds. We took that first before we went into commercial money and they are all fixed price without risk that will suddenly double the loan. It is very manageable and we are managing it very actively. It is a deliberate strategy. The value of the infrastructure is going to go up. We are a bit more confident that we can deliver on the promise to Nigerians.


What were the secrets of getting Nigeria out of recession?

I said from the beginning that we have two choices to make when confronted with a problem. Either you wait and see or you take a bold action. We chose to be bold. We said to everybody, we have to spend our way to get out of this problem. To spend that money, we have to borrow. And it was controversial, but it was the right decision because if we had waited, I am not sure the damage would have ceased. Maybe, we would have remained in recession for four or five years. We went through recession for five quarters. Yes, it was very painful, but our decision was the right way to go. It was short as possible and fortunately, we are now moving in the right direction. There is no secret and Nigerian people are very resilient. They kept fighting, encouraging the administration until we got out of recession. Now the turnaround has come, they are going to be the ones to reap the reward.


Should the price of oil fall again, do you envisage Nigeria going back into another round of recession?

No. Then we did not have as much as shock absorber as we have now. Our growth formation is better now. We have invested in a lot of infrastructure. The recent Focus Labs launched is to harmonise the economic growth plan because infrastructure alone cannot address the problem without strategic planning. The psyche of Nigerians has changed. The psyche of Nigeria as an entity has also changed. We have seen what a fall in oil price can do.So, we are much conscious. We have better fiscal buffers and our reserves have improved. We have started rebuilding the shock absorbers, so that if there is, God forbid, another fall in oil price, we won’t go back to recession. Again, we have introduced some reforms. In OPEC meeting now, it is no longer the Ministry of Petroleum Resources that attends, but Ministry of Finance now attends to get information. And we are getting outlook from there. If the economy goes back to recession, we will respond much more quickly.

We have now built early warning signals to enable us react proactively and the focus on taxes is part of it. We are also exploring other sources of revenue, building buffers and reserves. For me, the biggest protection is the psychology of the people. When you have been into something and you have seen what it is like, there is great consciousness as people to make sure we don’t go down that way again.

Why was borrowing necessary?

The recession would have been longer if we had not borrowed because we would need to wait for oil price to recover.


How would you have spent N307 billion on roads when oil price was low?

Demand is falling, peoples’ confidence is low, government stepped in and invested money in the economy.



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