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Is Nigeria Broke? Why Are We Borrowing $179million To Fund The 2010 Budget?

They say when things go wrong in Business or Politics you should always

follow the Money!

Well its is official that the Federal Govt under the Leadership

of Dr Goodluck is now borrowing money to fund it 2010 Fiscal Expenditure

NIGERIA BE CAREFUL O, LEARN FROM GREECE AND BE CAREFUL!!!

See Story Below,

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Source - http://odili.net/news/source/2010/apr/28/206.html

Senate Approves FG’s $915m World Bank Loan

From Sufuyan Ojeifo in Abuja, 04.28.2010

Wednesday, April 28, 2010

Senate yesterday approved the request by the Acting President, Dr. Goodluck Jonathan, to borrow $915 million (N138.165bn) from the World Bank.

 

Jonathan said that $179 million (N27.02bn) out of the total loan package would be utilized for the funding of the 2010 budget.

He had said in his letter to the National Assembly that the loan would be used to finance development in critical sectors of the economy.

Before approval was given, Chair of the Senate Committee on Public Accounts, Senator Ahmad Lawan (ANPP, Yobe North) demanded clarification on the expenditure plan for specific projects and communities that are expected to benefit from them.

Lawan said this would have bolstered a better appreciation of the projects instead of the wide scale listing of projects such as powers and rural development.

According to him, “In as much as I support the loan, I want to know what exactly are those projects that the money will be used for. I think it will also be proper for the government to tell us the communities that will benefit from the loan in the rural areas development scheme.”

Chair of the Senate Committee on Information and Media, Senator Ayogu Eze (PDP, Enugu North) said the loan would bolster development in the country.

According to him, “We found out that it was a worthwhile development to support our Acting President’s request to draw from the World Bank.

“The loan will support development of our energy sector, support opening of the rural areas, support the governors in providing infrastructure. We look back at it and consider it in order.”

Eze added, “We should be cautious about the loan; it should not be about borrowing but about the utilisation.

“The areas that have been outlined for this loan are critical, urban and water transport, human capacity development and power infrastructure development projects across the country.

“We should ensure that this loan is frugally managed so that we do not slip into where we are coming from.”

The House of Representatives had last week considered and approved the same request.

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15 answers

The IMF will not lend a country money unless the country was facing an emergency with its finances. Think of the IMF as the Financial Fire Service. Nigeria cannot today approach the IMF for a loan as we do not have a debt crisis. The IMF is a stop gap where a country can only access, if at all, loans at exorbitant rates from the markets.

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Care to elucidate further on this? You shouldn't just rubbish one idea without giving cogent analysis.

What capital commitments? The $64 BN airport runway when many countries have undertaken similar projects for approximately $3 BN. We should stop analysing Nigerian issues as if we are debating developed countries.

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If the IMF is cheaper, why don't all countries go to the IMF? The fact is that most developed countries have coupon rates less than IMF interest rates. Have a look at the table below (apologies for its muddled state); how many of these countries are big borrowers? Do not forget that IMF loans have concomitant conditions. Please have a look at greece today; at least three people have died in riots. Borrowing from the IMF is akin to people with bad credit borrowing at high rates from loan sharks.

MF member country↓ Quota: millions of SDRs↓ Quota: percentage of total↓ Governor↓ Alternate Governor↓ Votes: number↓ Votes: percentage of total↓

United States United States 37149.3 17.09 Timothy F. Geithner Ben Bernanke 371743 16.74

Japan Japan 13312.8 6.12 Naoto Kan Masaaki Shirakawa 133378 6.01

Germany Germany 13008.2 5.98 Axel A. Weber Wolfgang Schäuble 130332 5.87

United Kingdom United Kingdom 10738.5 4.94 Alistair Darling Mervyn King 107635 4.85

France France 10738.5 4.94 Christine Lagarde Christian Noyer 107635 4.85

People's Republic of China China 8090.1 3.72 Zhou Xiaochuan Hu Xiaolian 81151 3.66

Italy Italy 7055.5 3.24 Giulio Tremonti Mario Draghi 70805 3.19

Saudi Arabia Saudi Arabia 6985.5 3.21 Ibrahim A. Al-Assaf Hamad Al-Sayari 70105 3.16

Canada Canada 6369.2 2.93 Jim Flaherty Mark Carney 63942 2.88

Russia Russia 5945.4 2.73 Aleksei Kudrin Sergey Ignatyev 59704 2.69

Netherlands Netherlands 5162.4 2.37 Nout Wellink L.B.J. van Geest 51874 2.34

Belgium Belgium 4605.2 2.12 Guy Quaden Jean-Pierre Arnoldi 46302 2.08

India India 4158.2 1.91 Pranab Mukherjee Duvvuri Subbarao 41832 1.88

Switzerland Switzerland 3458.5 1.59 Jean-Pierre Roth Hans-Rudolf Merz 34835 1.57

Australia Australia 3236.4 1.49 Wayne Swan Ken Henry 32614 1.47

Mexico Mexico 3152.8 1.45 Agustín Carstens Guillermo Ortiz 31778 1.43

Spain Spain 3048.9 1.40 Elena Salgado Miguel Fernández Ordóñez 30739 1.38

Brazil Brazil 3036.1 1.40 Guido Mantega Henrique Meirelles 30611 1.38

South Korea South Korea 2927.3 1.35 Okyu Kwon Seong Tae Lee 29523 1.33

Venezuela Venezuela 2659.1 1.22 Gastón Parra Luzardo Rodrigo Cabeza Morales 26841 1.21

remaining 166 countries 62593.8 28.79 respective respective 667438 30.05

Now look at where the money is going

Big IMF recipients have included Mexico, Russia, and the Philippines (which has been under IMF "supervision" for 30 years). But all previous IMF loans are dwarfed by the current aid bundles going to East Asian countries in crisis. Last year, the IMF loaned a total of $121 billion to Thailand, Indonesia, South Korea, and the Philippines.

http://lpa.igc.org/lpv33/imf.htm

I really don't like these naive arguments that borrowing is not such a bad thing if the funds are utilised properly. Are there any factors that promote to this optimism?

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@Katsumoto

IMF/World Bank lending rates are far cheaper than market rates. The World Bank is cheaper as it is designed to provide developing countries with access to loans at below market rates.

The IMF is a lender of last resort which provides loans where a country can no longer afford to borrow at market rates.

Nigeria accessing loans from the World Bank is not a bad thing as long the money is properly utilized. The size of the loan is not particularly big. You should be more worried about Nigeria's domestic borrowing which is stealthily getting out of control.

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Actually the FGN may see the need to borrow based on its existing capital commitments  and the downward pressure on the price of oil due to the global economic recession.It may not have anything to do with mismanagement.

Besides loans from the world bank are usually tied to a particular capital project. This makes it easier to monitor the use and disbursement as compared to funds borrowed from the domestic treasury bill market  Besides the interest rates are much lower.

Loose talk about going into trade by barter is a complete nonsense and a non-starter.

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That is precisely what I am saying; it is our only option but it is not a desirable option for many reasons:

1. Mis-management - Nigeria borrowed under the Shagari and IBB govts; both actions led to untold hardship on citizens and the funds were looted

2. Stringent austere measures that leads to hardship on general populace. You only need to look at the strikes and protests that have started in Greece

3. Many oil producers do not borrow from the IMF. Venezuela is exchanging oil for infrastructure development with China, Russia, France.

I do not believe that Nigeria needs to borrow from the IMF/WB

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I meant IMF borrowing rates.

I would assume risk profile of a nation like Nigeria is high and access to funds at a cheap rate is not expansive, hence the WB/IMF is preferable for our likes.

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High interest rate is related with risk and access to funds. Greek bonds were getting close to 18% yield because the market was expecting a default. Contrast that with German 3 year bonds at 3%. High interest rate is related to risk; so the riskier the investment is, the higher the yield expected by the market. I didn't get your comment about high interest rates - do you mean interest rates with regards to that set by central banks or IMF borrowing rates.

5% is not bad because the EU and Germany negotiated that rate for Greece. No African or South American country will get that rate. The EU cannot allow Greece to fail as it has many implications for the Euro area; the falling Euro as well as dire consequences for Portugal, Spain, Ireland, and Italy.

Read this

http://www.bbc.co.uk/blogs/thereporters/stephanieflanders/2010/05/the_greek_bailout_flameout.html

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^^^Are you sure the reasons they are lenders of last resort is because their policy is to lend to those with no access to funds in free markets with reasonable rates, not because of high interest rates?

5% does not sound bad at all.

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The reform you talk about is necessary and noble; however, we don't have the individuals to carry out such reform.

IMF/WB is not cheaper, its always a last resort. Think of Greece; there has been a talk of default on its bond commitment for the past 9 months. Finally, when the credit rating agencies declared its bonds as junk, the EU/IMF had to step in with the loan. If the loan was cheaper from day one, it would have gone straight to the IMF. With guarantees from Germany/EU, the IMF will loan Greece €110 billion at 5-6 percent which is approximately 2-3 percent above German bonds, which is the benchmark in Europe.

Also think of the fact that the IMF loans funds mainly to poor countries who are unable to raise funds in the global money markets and who invariably default on its high interest rates and stringent austere measures.

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Yeah, that is the risk.

There really needs to be a social reform initiative on corruption. EFCC is already there to do the investigation, now there is a need of laws that should involve heavy application of death sentence and asset seizures (of all assets, not only the ones you are guilty of embezzling, but also all the assets under you and close family members that is above your/their means), and Corruption Courts that catalyse corruption suspect being brought to justice swiftly. This should enforce focus on the issue and act as a deterrent to the perpetrators.

I would have thought that borrowing from IMF/WB is cheaper? Is that wrong?

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But we know the baboons in Nigerian politics are just going to mis-manage and embezzle the loan. Besides, borrowing from the IMF or World bank should be a last resort since interest rates on IMF/WB loans are usually higher than coupons on Sovereign National Bonds.

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That is because they are looting the oil money so they have to borrow from the West. Sometimes, I think Nigeria is ran by a bunch of illiterates. Especially most of them are from the north.

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Because Nigeria is borrowing money does not mean Nigeria is broke.

Sometimes borrowing is a good thing if utilised right.

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Why wont they approve it, they know they will all share the money and be happy to leave Nigerians to pay back the debt.

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