The Senate, on Wednesday, approved the sum of $2.6 billion out of the $5.5 billion external borrowing request sent to the National Assembly by President Muhammadu Buhari in May 2020.
The approval came after the Upper Chamber considered a report by the committee on local and foreign debts during plenary.
The approved sum, according to the Chairman of the Local and Foreign Debt Committee, Clifford Ordia, would see €995 million euros going to finance priority projects of the federal government, while $1.5 billion would be disbursed to the thirty-six state governments to finance critical projects.
Out of the total sum approved, $1.5 billion is to be sourced from the World Bank; €671 million euros from the Export-Import Bank of Brazil; and another €324 million euros from the Deutsche Bank of Germany.
The tenor/moratorium of the loan to be sought from the World Bank is 25 years at an interest rate of 2.45 percent per annum; while that from the Export-Import Bank of Brazil is for 15 years at an interest rate of 2.935 percent; and the loan request from the Deutsche Bank of Germany for seven (7) years at 2.87 percent interest rate.
President Buhari, in a letter dated May 19, 2020, sought the approval of the National Assembly to secure a foreign loan to the tune of $5.513 billion to finance deficits contained in the 2020 budget.
He explained that the loan would be sourced from the International Monetary Fund, World Bank, African Development Bank, Export, Import Bank of Brazil and the African Export, Import Bank.
According to President Buhari, out of the total $5.513 billion (USD) loan request, the sum of $3.4 billion (USD) would be sourced from the International Monetary Fund; $1.5 billion (USD) from the World Bank; $500 million (USD) from the African Development Bank; and $113 million (USD) from the Islamic Development Bank.
However, Chairman of the Senate Committee on Local and Foreign Debt, Clifford Ordia (PDP, Edo Central), while giving a breakdown on the application of the sum approved National Assembly, disclosed that €995 million (Euros) would be deployed to finance priority projects to address the impact of the COVID-19 pandemic and to improve Nigeria’s food security through the mechanization of agriculture and Agro processing in Nigeria.
He explained that a total of six indigenous assembly plants, one in each geo-political zone have been identified and would be rehabilitated to assemble completely knocked down CKD mechanization farm machinery and equipments to be imported from Brazil.
According to the lawmaker, the CKD mechanization to be imported would, specifically, be adapted for local conditions with job creation opportunities for citizens.
He emphasized that the loan is intended to be used to deliver technological package to smallholder farmers for a fee through the establishment is service centres in each of the 774 Local Governments of the Federation to be owned and run by private business entities.
On providing fiscal support to states across the federation, Ordia disclosed that the sum of $750 million from the World Bank would be used to finance States Fiscal Transparency, Accountability and Sustainability (SFTAS) Program in all states of the federation and the Federal Capital Territory.
He noted that the said financing was approved by the National Assembly in June 2020 as part of the $1.5 billion Development Policy Financing to part finance the Federal government’s 2020 revised budget deficit.
According to him, the Local and Foreign Debt Committee found that in October 2020, following the continuous economic disruptions occasioned by the pandemic and in view of the need to consolidate on and sustain the gains of the program and to increase states fiscal capacity to respond to the COVID-19 crises.
He added, “the Committee found that the Federal objective of the restructuring is to support states to introduce measures to further mitigate fiscal shocks by introducing COVID-19 responsive Disbursement Linked Indicators at state level, to match the fiscal measures at the federal level.”
“The Committee notes that it is based on the above restructuring, that additional financing in the sum of $750 million is now required for the COVID-19 response of Nigeria”, Ordia said.
The lawmaker explained that another $750 million (USD) would be used to finance the the COVID-19 Action recovery and economic stimulus program to support efforts by state governments to protect livelihoods, ensure food security and stimulate economic activity.
Contributing, Senator Solomon Olamilekan (APC, Lagos West) said going ahead to approve the loan request would demonstrate the proactiveness by the National Assembly to insulate the Nigerian economy against a possible decline.
“Embarking on this borrowing plan as explained by the Chairman of the Committee shows that we are being proactive”, he said.
According to the lawmaker, “the bulk of what is contained in this report is for the states – the thirty-six states of the federation. Out of this, only €995 million euros is for the Federal government; while $1.5 billion dollars is to the state governments.
On his part, Deputy President of the Senate, Ovie Omo-Agege (APC, Delta Central) while supporting the report of the Local and Foreign Debt Committee, sought to know if the Committee in coming up with its recommendations was privy to the terms and conditions of the loan agreement.
Senator Betty Apiafi who raised viability concerns on projects to be financed at the state level demanded to know if an arrangement was in place for maintenance of CKD farming machinery to be imported by the federal government from Brazil.
In his response to observations and concerns raised by his colleagues, Senator Ordia explained that the documentation of any loan request can only take place after the National Assembly gives its approval to the external borrowing request before it.
“Loan documentation actually starts taking place when the National Assembly has approved, because if the National Assembly is not able to approve, then there’s no need to continue with final negotiation and documentation.
On the issue of maintenance of farming machinery and equipment, the lawmaker explained that there are provisions for the maintenance of same.
In his remarks, the Senate President, Ahmad Lawan, said, “the comment by the DSP (Ovie Omo-Agege), in my understanding is to say you would be given the terms and conditions of the loan when the request is to be processed by your committee.
“My understanding is, this is one step that is necessary because it is not enough just to look at the annual rate at which the loan is granted, there could be some other issues behind.
“I want to imagine that you did that because that should be the basis for some of your recommendations. It is not enough to base the recommendations on the interest rate alone, or the moratorium or tenor. I want to imagine that that was what your committee did.”
Lawan further advised the Committee to liaise with the Debt Management Office for updates on the total loans accessed by the federal government.
“I think you will take an additional step, and that step is to request the DMO to update you quarterly or whatever, so that you know exactly as a committee where we are in terms of what we have approved and what you have accessed.
“It is very important, it is not enough for us to approve, but we should also know when we are able to access such loans.” Lawan said.