Following the recent approval by the federal government to go for external borrowing to stimulate the national economy, a former World Bank Economist and former Minister of Finance, Dr. Kalu Idika Kalu had advised that honesty and timeliness among others are vital to the achievement of the purpose for the proposed loan.
Speaking with The New Diplomat in a telephone chat on the recent federal government decision, Dr. Kalu noted that although the move for external loan appears late, but it is not too late, adding that aside the timing, what is important is the quantum, cost, terms, disbursement schedule and honesty in the allocation of the expected loans.
“Aside timing, quantum, cost, terms, disbursement schedule, and scrupulous honesty in its allocation to the intended balance of payments and project financing are very important”, Kalu advised.
He however kicked against the government search for foreign advisers in respect of the expected loans which he said will consume a good chunk of the fund to be sourced. According to him, if competent hands were hired in government they should be able to advise the government on the effective and efficient choices to make and the allocation of the money to be realized.
Said he: “You have to have somebody there who understands how it is to be done. As I said, you have to do your calculations because it is only when you do your calculations that one, the exchange rate would immediately stabilize and improve. And two, you address the issue so that the economy begins to recover, rise in production, employment, income and so on.
“Even now that they are feeling that they should do that (go for external borrowing), whether they would do it adequately. For instance now, they are floating 1 billion Eurobond; that is what we keep hearing.
“And they are looking for advisers. If you have people in government why would you be looking for advisers, and the time it would take and the net you will have after you have paid advisers? It is what you have as left over that you can apply to what you want to do. The amount you are going to go for should be sufficient to address both your balance of payment and essential import and project financing to get the economy moving.”
Reacting to the suggestion by Christiane Lagarde, the IMF chief when she visited Nigeria in February, that Nigeria does not need external borrowing, Dr. Kalu said that the IMF boss may not be abreast with Nigerians programmes, adding that she may have said what she said just to assuage the sensibility of Nigerians that she had not come to force us to take loans. According to Kalu, it is the leadership of Nigeria who can determine whether there is the need for additional financing beyond what is available.
Said he: “It is not Lagarde who will tell us what we need. They think they want to assuage our sensibilities, oh I haven’t come to give you a loan, you don’t need a loan and so on. It is the leadership, it is the technical people who can determine whether we need additional financing beyond what we have. They (Lagarde) don’t know what our programmes are.”
Also responding to the proposed 2017 federal budget of N6.1 trillion, Kalu said that though the figure looks big, when it is adjusted to the new price level and exchange rate, the budget is likely to be smaller than previous years’ budgets.
“You see, those numbers don’t mean very much. By the time you adjust for the new price levels and new exchange rate, you will find that they are probably smaller than budgets for three years back. In other words, if you want to buy cables for instance, how many cables can you get now? You will find that you may get less cable than you could have gotten three years back with the same money. So, you don’t just go with the numerical value but the real value of the budget. For me, they better clarify what they are doing now before talking about 2017 budget.
Advising on the allocation of the expected loan, Dr. Kalu said it is too casual for the government to say it is to be applied to agriculture, mining development, power and health care sector, stressing that “you are supposed to have specific project, the specific project will give you how much you are going to spend and what are the things you want to do; how much of that thing is in foreign exchange and how much is in naira and how much of the foreign exchange you want to borrow against. It is to address the needs of the economy and that includes a whole lot, mining, agriculture, manufacturing, infrastructure, social services, education, health care, housing, etc. They have to come up with a detail plan.”
Kalu recalled with nostalgia that if the federal government had listened to him before now the naira should be exchanging for 10 to a dollar, regretting that the government ignored his advice.
“If they had listened to me in 1984 the naira should have been exchanging for 5 to a dollar. If they had listened to me in 1994, the naira should have been exchanging for 10 or less to the dollar. See how much time we lost. Even as we speak, it is not clear what they intend to do”, he said, adding that Egypt a few weeks ago got a loan of 15 billion dollars and their economy is moving ahead.
It would be recalled that Dr. Kalu Idika Kalu who is a former Minister of Finance in 1984 under the Babangida administration, is also a former World Bank expert. He advised that Nigeria should go for IMF loan in 1984 but got negative response from Nigerians and the government. Hence the Babangida regime introduced Structural Adjustment Programme, SAP.
President Buhari recently gave approval for external borrowing to rejig the Nigeria ailing economy which has officially gone into recession. The expected loan, The New Diplomat gathered, is to be applied to agriculture, mining development, power and health care sectors. It is not yet clear whether or not the loan expected from the World Bank, China and Japan would also be used to stimulate production in the manufacturing sector to create employment and address the issue of balance of payment.