Nigeria says $29.9 bln proposed debt meant to solve infrastructure problems

Nigeria said its plans to borrow about $29.9 billion was meant to help in addressing the biting infrastructure deficit in the West Africa country, the chief executive of the Debt Mangement Office said.

“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 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,” Abraham Nwankwo said.

He  one of the features of the proposed loan is the low concessionary nature of the interest rate, which has an average interest rate of 1.5 percent. This arrangement differs from previous loan arrangements (under previous administrations) with the Paris Club of creditors, which came with floating interest rates as high as 18 percent.
The facility, he said will help revive infrastructure like railways which will smoothen movement of heavy goods across the country.
Nwankwo noted that tackling infrastructure deficit would force down costs of goods and services on the long run, explaining that the development will have a significant impact on the price level in the economy.

“That impacts the economy by bringing down the general price level, (they call it the consumer price index, which is a classical measure of the price level and the rate of inflation.) When you do this, the Central Bank of Nigeria will set the monetary policy rate low, because all over the world, the central bank knows it has to put the monetary policy rate high enough to catch up with inflation rate, otherwise we will be talking of negative real rate of interest which destroys 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.
The debt office chief said the $30bn is actually for a three-year-period and that it will run from 2016-2018 to be repaid in 20-30 years time. He said, with this arrangement, it will not be difficult for the country to repay. 

According to him the DMO had advised the Federal Government that Nigeria can as from 2017 acquire loans to the tune of $22bn and that $30bn(for three years) is lower than what it advised the Federal Government to get. Speaking on how the $30bn will be spent, Dr. Nwankwo stated that the sum of $10bn will be spent per annum for three years and will be targeted at building infrastructure in all states of the federation and the main focus will be on power generation, rail and road renovation and construction.

Nigeria's Senate dealt an unexpected blow to President Muhammadu Buhari on Tuesday by rejecting his plan to borrow $30 billion abroad for infrastructure projects and budget support until 2018. Senators threw out the plan, introduced last week, without debate. When a surprised Senate President Bukola Saraki held a second vote, most senators shouted again "Nay".