Nigerian President Goodluck Jonathan has asked parliament to approve $7.9 billion in loans to fund pipeline projects between 2012-2014, which if approved would more than double the country’s external debt.
Nigeria’s external debt stood at around $5.7 billion at the end of last year, equivalent to around 2.6 percent of GDP, which is low compared with other African countries. But if Jonathan’s new loans are approved this would jump to $13.6 billion.
Nigeria’s foreign exchange reserves have fallen in the last three years despite record high prices for oil, the source of around 95 percent of Nigeria’s foreign exchange earnings.
Finance Minister and Coordinator of the Economy Ngozi Okonjo-Iweala’s medium term fiscal framework, marking out the government’s financial plans for 2012-2015, was passed by parliament in December but made no mention of these loans.
That suggests the pipeline projects are either new and outside previous development goals, or that the government has underestimated its financing needs. Jonathan’s letter gave no details on what the projects are or if they are new.
Okonjo-Iweala was finance minister between 2003 and 2006 under former President Olusegun Obasanjo, when she successfully negotiated the cancellation of nearly two-thirds of Nigeria’s $30 billion Paris Club debt.
She left the World Bank, where she was a managing director, to join Jonathan’s cabinet last year and has stressed the need to keep Nigeria’s external borrowing under control.
“Nigeria’s external debt remains marginal … This means the new loans would not endanger external debt sustainability assuming they are approved,” said Samir Gadio, Africa economist at Standard Bank.
“That said, the amount represents more than the outstanding foreign debt stock, so the planned borrowing will probably be controversial in some circles…
“Such a qualitative shift, even from a low base, will only be justified if there are tangible projects in the pipeline whose implementation can be properly monitored and tracked,” Gadio added.
The loans would be provided by the World Bank, African Development Bank, Islamic Development Bank, Exim Bank of China and Indian lines of credit, said a letter signed by Jonathan, which was read in both houses of parliament on Tuesday.
“The pipeline projects are at various stages of finalisation … the initiatives are meant to put the economy on track through growth and employment,” Jonathan’s letter said.
From Business Live, SA