Olu Falae: Borrowing Not Bad; But What For, From Who, On What Terms?

Chief Olu Falae has said that there was nothing wrong with a government borrowing, but that the right answers must be provided for “for what purpose?” “from who?” and “what are the terms?”.

The banker, administrator and politician raised the questions in an interview with Vanguard, while commenting on the debt profile of the Federal Government.

He noted that Nigeria got into same foreign debt trap during Shagari’s era, when the government started issuing import licences far in excess of foreign earnings.

Olu Falae said: “One is not condemning borrowing. But what are you borrowing for? From whom are you borrowing? What are the terms of the borrowing?

“Now, we are taking Euro bonds. Those are commercial loans and the interest rate will be high.

“And when you borrow from abroad, there is a hidden factor that most people don’t know. It’s not just the interest rate or repayment period.

“There is what we call the currency risk. You are borrowing in dollars or pounds sterling or euro. The naira has been depreciating against the dollar almost from time immemorial.

“Not only do you pay the interest rate or the coupon rate, you have to bear the currency risk; that is the depreciation of the naira consequences for your borrowing.

“So, it is double jeopardy and the interest you are paying.

“Unless you have competent knowledgeable people doing these things, you will be in a terrible mess.”

On how to get out of the debt crisis, he said: “The only realistic external debt strategy for Nigeria is still a buy-back. If it could be done then, it can be done now.

“And when you borrow from abroad, there is a hidden factor that most people don’t know. It’s not just the interest rate or repayment period.

“There is what we call the currency risk. You are borrowing in dollars or pounds sterling or euro. The naira has been depreciating against the dollar almost from time immemorial.

“Not only do you pay the interest rate or the coupon rate, you have to bear the currency risk; that is the depreciation of the naira consequences for your borrowing.

“So, it is double jeopardy and the interest you are paying.

“Unless you have competent knowledgeable people doing these things, you will be in a terrible mess.”

On how to get out of the debt crisis, he said: “The only realistic external debt strategy for Nigeria is still a buy-back. If it could be done then, it can be done now.

“I said I could eliminate Nigeria’s external debt in six months, when I was campaigning. I just wanted to be modest. It could be done in three months.

“A buy-back is taking back from your creditors the bonds you gave to them; the piece of paper you signed.

“If you don’t want to follow those agreements, the only concession you can validly and reasonably expect is a buy-back.

“In 1988, when I was secretary to the government, Nigeria sold 10 percent of her equity in Shell BP for $1.8 billion.

“So, if we are to sell 10 percent of our equity in all the oil companies, we would able to raise some $20 billion immediately.”

Olu Falae said former President, Chief Olusegun Obasanjo, was able to buy back the country’s debt within two years by following his recommendations.

He also said the borrowed funds should be used for priority projects, not constructing railway to Niger Republic, when many states in Nigeria don’t have rails.

Falae advised the Central Bank of Nigeria, CBN, to stay off retail banking.

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