Though Nigeria may be enjoying the relief of having exited the foreign debt trap of over $30 billion through repayment during the oil boom of the former President Olusegun Obasanjo administration, the non-clearance of domestic debt put at about $26 billion may harm the economy.
This warning was sounded by Dr. Ngozi Okonjo-Iweala, Managing Director of the World Bank and former Finance and Foreign Affairs Minister during an interview with journalists at the World Bank headquarters in Washington D.C., United States (U.S.).
She said it was wrong for the President Goodluck Jonathan-led Federal Government to avoid paying domestic debt, thinking that it would not have any economic implication.
Her words: “Nigeria has to pay attention to domestic debt. Anytime they are talking about Nigeria’s debt, people will begin to shout about external debt which is not the case. Internal debt is the problem to talk about, not external debt which is no longer a problem to Nigeria . The government should stop accumulating domestic debt, thinking that it cannot harm the economy. That is not true. If you accumulate a lot of domestic debt, first of all it will crowd out the private sector operators when the public sector enters all the time.
“The level we are now, we should not accumulate more domestic debt so that it will not lead us to where we were before we came out. It is not only external debt that leads to choking off economic growth and the private sector. We were owing $30 billion to the Paris Club at that time and it has been resolved. External debt is not the case but internal debt is the problem.”
On the controversy over whether the growth figure being claimed by the government was real, she said what mattered was to to let the Federal Government be aware of the need to support the Finance Minister, Olusegun Aganga, to have a fiscally-prudent approach to managing the resources of the country.
She said: “The excess crude account has been depleted and a lot of spending are going on, we need to manage the budget in a tighter fashion.
“We need to control our fiscal deficit which according to what I was told is approaching six per cent of GDP. We need to bring it back to three per cent. We must support the budget and the Finance Minister to do that. That is a clear message.”
On the fears that the excess crude account in Nigeria was rapidly depleted, she said the nation had devised a means of managing the volatility in oil price with the creation of the Sovereign Wealth Fund.
She declared: “The excess crude account through which money is being saved is being depleted. But now, with the creation of the Sovereign Wealth Fund including its stabilisation and investment, if we are not going to have the excess crude since there is no legislation for it, we really need to support it with various windows. This is because we really need to be prudent and manage our resources very well.
“Nigeria would not have been able to manage the financial crisis if not for the excess crude. Remember when it was being created, there were lots of objections, some people criticising us why the money was being saved. They insisted that we don’t really have to save the money, not knowing that proper katakata rain was going to come and it came during these crises and they were able to access it and use it.
“We must support the fiscal rules and putting money in the SWF in the stabilisation and investment part for the future. African countries with commodity prices issues must look at this type of mechanism. They have to look at a way to de-link the commodity prices from the budget and save for the time that the prices come down.”
She said the same precaution was necessary in countries that depended on commodities that could be hit by prices volatility
“When the food prices stopped, you know that was particularly severe for some countries on the continent and there were even riot in some countries. Hence, managing the volatility in agriculture is crucial and is one of the areas in which the World Bank is focusing. We will increase investment in agriculture from $400 million to $800 million this year.
And we are managing a fund for the G-8 and G-20 that is called the Global Agriculture and Food Security Fund. It is also designed to encourage long term production, helping countries to solve the problem of storage and processing. If you can avoid export restrictions, you can deal with this issue.”
On the attainment of Millennium Development Goals (MDG), she said Africa had to focus on growth that will create jobs.
She said: “We have to look at the type of growth. Is it growth that is creating jobs or the one that is putting food on the table? We have to look at the type of growth carefully. And the World Bank is trying to work with countries to look at the quality because we can have what is called jobless growth. In Africa, we need job-creating growth and that means looking at several sectors where jobs are being created like the agriculture.
“We really need to invest. If we invest in agriculture, you grow and cut down on poverty and put jobs, and enable people to be productive, not the old type.
I am not talking about just increasing output but now looking at different type of agriculture investment, adding value to the chain. So, how do we process the goods? How do we market the good that are produced? How do we increase productivity on the continent if it is the proper type of growth?”
She acknowledged the positive news about growth coming from Africa in recent time, advising that efforts should be made to sustain the tempo.
“The news we have is both promise and opportunity for the continent. Africa has suffered not just from the financial crisis but from the food and fuel crises. Prior to this crisis, the region was growing on a trajectory of 6.7 per cent and during the crisis, it fell to one per cent. What we are now seeing, according to our own projection at the World Bank, is 3.8 per cent in 2010 and 4.6 per cent next year. The IMF is even more bullish than that, the World Economic Outlook is projecting a growth rate of between five to 5.5 per cent.
“So, between the World Bank and the IMF, we are talking of a growth rate of between four to five per cent this year and next year.
This is like twice the amount of growth in the developed countries. This, to me, is an interesting story and we ask ourselves how come Africa has been able to rebound.
“In the past crises, Africa was not able to come back so quickly.
There was a lag in the recovery but now, you can see Africa bouncing back, better than other parts of the world. African countries have pursued prudent macro economic policies.
They learnt lessons from the past and they have managed their fiscal deficit relatively well. They have managed exchange rate relatively well and they just have been able to put themselves on a more stable path to be able to take advantage of all opportunities to grow.
So, it is remarkable that the continent, that was victim of the crisis, is now rebounding with some strength. This has led to the continent being looked at in a new way.
“Assistance is being given and the perception is changing. We, as Africans, also have the responsibility to think differently that the issue of aid to the continent is not a question of charity but a question of investment. And it is really a means of creating a platform upon which private investment can come in.
The platform has to build institutions, build infrastructure, leverage private sector money and this is the way that jobs are going to be created on the continent and then the continent will grow.
Then, my real message is that Africa has shown resilience and strength with the global financial crisis and the question now is maintaining the momentum of these policies and continue to show result.
That will show the world that Africa is ready to receive the opportunities.”