DMO clarifies issues on $29.9bn proposed FG loan

• Says there is need to tackle infrastructure challenges

The Director General of the Debt Management Office (DMO), Dr. Abraham Nwankwo on Tuesday provided clarifications on the proposed $29.9 billion foreign loans request submitted to the National Assembly last week by President Muhammadu Buhari.

The DG, while speaking on a Channels TV live programme, Sunrise Daily, explained that the loans, which cover a period of three years, would help in addressing the biting infrastructure deficit in the country.

He stated, “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.”

According to him, 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 per cent. 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 per cent.

He also explained that the facility will help revive infrastructure like railways which will smoothen movement of heavy goods across the country.

He believed 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 DG stated that the $30 billion 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 $22 billion and that $30 billion (for three years) is lower than what it advised the Federal Government to get. Speaking on how the $30 billion will be spent, Dr. Nwankwo stated that the sum of $10 billion 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.