On national debt: A reply to Obasanjo — by Tope Fasua

The tragedy of our times is that there is so much ignorance in the age of information and so much illiteracy in a time when people are educated. The challenge for all is to speak up and keep repeating facts in the hope that somehow they begin to sink in where they now seem bereft.

The times present new challenges. Economies are not what they used to be, and we cannot solve today’s problems using the same thinking that created them. These are my initial thoughts as I attempt a necessary riposte to the vehement political statements of former President Olusegun Obasanjo.

I call it political even though it is meant to be an economic subject – Nigeria’s debt. But the reasoning and delivery are so well-timed to do damage that the field of economics has to reject what was stated as fact and dump it in the trashcan of chicanery.

First, it is apposite to look at today’s national economies. There is a race for development, and no nation wants to be left behind, not even North Korea, perhaps the most isolated country on earth.

Every government is working to improve the lives of its people, build infrastructure or at least create a legacy. In this development superhighway, nobody is slowing down for anyone. What is even more likely to happen is for those who can to slow down those who are not wary of geopolitics.

I wrote an article some months back in which I argued that the world has indeed underinvested in Africa and that Africa, especially Nigeria, is certainly not over-borrowed.

That conviction still stands. In today’s world, we cannot run an economy without proper treasury management, which means leveraging our resources and cash flows for the future to grow bigger, provide better for our people and obtain the assets we need today for a greater future, such as tangible infrastructure.

I wagered in my article that the smart nations of the world, most of them Western countries, have ensured that they secured real leverage and have become destinations to which people troop for everything under the sun – education, health, tourism, technology, knowledge, information, skills and everything in between. I urged African nations to wake up!

It is therefore a wonder why Obasanjo would make such a statement. I can only put this down to his political support for Peter Obi, whom he probably hopes to use like dough in his hands, and his longstanding opposition to President Bola Tinubu, who has naturally proved to be a tough cookie for anyone to gobble up and certainly possesses a strong mind of his own.

HISTORY OF NATIONAL DEBTS

This is a fine opportunity to trace the history of national debts. Why do countries borrow? Do countries have to borrow? What happens if they do, or if they don’t?

When we are stumped for answers, it is always inevitable to look back to determine how we got to where we are. Making statements in reaction to immediate events is a mindset we should leave for the unwise.

I was recently addressing a gathering of secondary school students when I realised that we are raising them to be angry because almost all of them are not rooted in Nigerianism.

The only way our children can be invested in Nigeria is if they understand the country’s history. Who founded Nigeria? What is colonialism and slavery? Why were the northern and southern territories merged? Who secured our independence?

What caused the political breakdown of the parliamentary government? What caused the first coup? Who died? And the second coup? What about the subsequent ones?

Who were and are the key players of Nigeria’s First, Second, Third and Fourth Republics? What were their legacies? How have we managed our diversity so far?

These questions and their answers are what will enable us to build our nation. We shouldn’t shy away from them.

On the matter of debt, we need history too. Below is what I found with a simple internet search:

Ancient and Medieval Eras: Rulers in ancient Mesopotamia and the Roman world borrowed money for wars and public works, occasionally enacting “debt jubilees” or forgiveness decrees when obligations became unsustainable. In medieval Europe, tally sticks, which were notched wooden pieces split between the crown and creditors, were used to track royal debts.

The 17th-Century Shift: The Dutch Republic revolutionised state borrowing by issuing long-term public bonds to citizens to fund its war of independence.

The history of British national debt can be traced to the reign of William III, a Dutchman otherwise known as William of Orange, who became King of England, Scotland and Ireland from 1689 to 1702. He engaged a syndicate of City traders and merchants to issue government debt, a development that eventually evolved into the Bank of England.

The Bank of England (1694): Britain adopted and formalised this framework with the establishment of the Bank of England, turning national debt into a permanent, tradable financial instrument rather than a sign of royal bankruptcy.

Wartime Spikes: Throughout the 18th and 19th centuries, major conflicts, such as the Napoleonic Wars and the American Revolutionary War, were the primary drivers of debt. British debt-to-GDP exceeded 200 per cent following the Napoleonic Wars.

World Wars I and II: Global conflicts pushed debt to historic heights. US and British debt-to-GDP ratios peaked at around or above 240 to 250 per cent by the end of World War II in 1945.

From the outset, we can see that nations borrow for projects. The most important projects in the early days, as humans gathered and cooperated in large civilisations, were wars.

The first national borrowings by rulers were therefore for wars, whether in the Dutch Republic, England or America.

In China, emperors considered borrowing from their people to fight wars beneath their imperial dignity, so they resorted to fines and taxes when such events arose.

There is a second critical reason behind national debts and government borrowing: it secures the commitment and loyalty of the moneyed class behind their societies or nations.

When you give money to the King for a war, you remain invested in that money and ensure your society survives.

It could be argued that post-colonial nations like Nigeria never had that organic opportunity to secure the loyalty and commitment of the moneyed class and their people in the same manner, as we were quickly introduced to borrowing through global structures and foreign banks.

But, in general, borrowing is essential in today’s economy because national economies must now be managed with the expertise of bank treasurers.

The first principle at that level is never to sit on cash or fail to leverage it to achieve more, especially as populations continue to grow.

THE ANDREW JACKSON EXPERIENCE – PAYING DOWN NATIONAL DEBTS

The world has learnt lessons about national debts. In the medieval times referenced above, a king borrowed to fight wars, and when he died, the debts died with him.

Over time, through the establishment of national or central banks, debts owed by nations began to be tracked beyond the deaths of specific monarchs.

Some leaders have also tried to pay down debts because they believed borrowing was bad.

One such leader was US President Andrew Jackson, who hated debts of any kind and decided to repay his country’s national debt, which stood at about $75 million in 1835.

Jackson was a Tennessee landowner and land speculator who had lost money and fallen into debt himself before becoming president. He therefore abhorred the idea of borrowing money for anything.

However, his decision demonstrated the distinction between managing a household, a company and a government, as it resulted in a disaster for the US economy.

When he paid down the debt by selling federal lands, the following events unfolded:

Distribution of the Surplus: With the debt eliminated and money still flowing in from federal land sales and tariffs, the government accumulated a large cash surplus. Congress passed the Deposit Act of 1836, distributing the surplus federal funds to the states.

Wildcat Banking and Speculation: Jackson had dismantled the Second Bank of the United States, removing central banking controls. The surplus funds sent to state banks, known as “pet banks”, led to a massive expansion of paper money and uncontrolled lending, fuelling a frantic western land-speculation bubble.

The Specie Circular: To curb land speculation and paper money inflation, Jackson issued the Specie Circular in July 1836, an executive order requiring buyers to pay for federal public lands only in hard currency, either gold or silver.

The Panic of 1837: The sudden demand for hard currency drained banks of their reserves, burst the speculative bubble and triggered the Panic of 1837. This led to bank failures, widespread unemployment and a deep depression that lasted nearly seven years.

Return of the Debt: The debt-free status lasted only about a year. The economic crash dried up government revenues, forcing the US government to resume borrowing.

From the above, the US could maintain its debt-free status for only one year but suffered a seven-year recession.

Historians say that if the US had maintained a debt-free status, it would have ended up as a mere agrarian state because the ability to borrow for ventures has a positive effect on creativity and expansion, whether for governments, businesses or individuals.

The equivalent of the post-1835 economic meltdown in the US today would be for Nigeria to wake up and fully repay its loans. We would then only be able to grow our economy in line with what the government could raise through taxes, duties, rates and fines.

This means the government would put the people under immense pressure. The economy would shrink into a recession, while poverty rates, crime and unemployment would spike.

The idea is not to borrow recklessly. But Nigeria’s debt-to-GDP ratio, at a mere 35 per cent, is one of the lowest in the world today.

An astute financier would wonder whether we have no need for money, no infrastructure to build, no population to cater for, no children to send to school and no elderly people requiring healthcare.

Therefore, saying debts are worse than leprosy or that they are bad for a national economy is a very careless fallacy.

THE OBASANJO DEBT REPAYMENT

We learnt about the debt trap in every Economics class before 2006. It was the story of how Africa, Asia and some South American countries mismanaged debt or were sometimes coaxed or arm-twisted by much smarter lenders categorised into the London and Paris Clubs.

Precisely, affected countries were categorised into Heavily Indebted Poor Countries (HIPCs) and those deemed capable of paying at least some of their debts.

Nigeria fell into the latter group and was made to pay $12 billion in exchange for the cancellation of $18 billion in debt.

Some prominent Nigerians, notably former Governor Tunde Fashola, expressed the opinion that Nigeria ought not to have entered into such an expensive deal.

Of course, 33 African countries benefited from the 2006 arrangement, named the G8’s Multilateral Debt Relief Initiative (MDRI), which cancelled 100 per cent of eligible multilateral debts for many of the world’s poorest nations.

Following the oil shocks of the 1970s and collapsing commodity prices in the 1980s, between 39 and 42 low-income countries became trapped in unpayable external debt owed primarily to Western governments, the IMF and the World Bank.

To qualify for the World Bank’s HIPC Initiative, these nations had to prove that their debt burdens were unsustainable even after traditional debt-relief mechanisms.

In Sub-Saharan Africa, these countries included Benin, Burkina Faso, Burundi, Cameroon, Central African Republic, Chad, Comoros, Côte d’Ivoire, Democratic Republic of the Congo, Eritrea, Ethiopia, The Gambia, Ghana, Guinea, Guinea-Bissau, Liberia, Madagascar, Malawi, Mali, Mauritania, Mozambique, Niger, Republic of the Congo, Rwanda, São Tomé and Príncipe, Senegal, Sierra Leone, Somalia, Sudan, Tanzania, Togo, Uganda and Zambia.

In Latin America and the Caribbean, the beneficiaries included Bolivia, Guyana, Haiti, Honduras and Nicaragua.

In Asia, Afghanistan benefited from a 100 per cent debt write-off from the IMF, the World Bank and other creditors. Laos, Myanmar and Vietnam had appeared on early pre-2006 HIPC assessments but were dropped, like Nigeria and Kenya.

It is, however, noteworthy that by the end of Obasanjo’s administration, Nigeria was back in debt.

Domestic debt stood at N2.05 trillion, while foreign debt remained at $3.35 billion.

The naira was exchanged at N124 to the dollar, taking Nigeria’s total national debt to $19.8 billion when President Umaru Musa Yar’Adua took over.

Nigeria’s debt rose to $45 billion as of May 29, 2011, and $63.8 billion as of May 29, 2015, when President Muhammadu Buhari took over.

The Tinubu administration inherited $113.42 billion in total debt, including the CBN Ways and Means figure. Today, the figure stands at $123 billion.

This rundown is important to debunk the false claim and alarm circulating that President Tinubu has been overborrowing.

He has only been responsible, borrowing only when absolutely necessary. But as an ambitious government, the total transformation President Tinubu has embarked upon certainly requires funding.

With infrastructure development at the level of Dwight Eisenhower’s National System of Interstate and Defence Highways, an addition of $10 billion to the total debt stock should certainly not attract statements from Obasanjo to the effect that “debt is worse than leprosy”.

One can only attribute such a statement to politics. Obasanjo is rooting for Peter Obi, a man he believes he can control, and a man who has not put forward any progressive initiative for Nigeria apart from rabble-rousing.

The statement also reeks of hypocrisy, given that Obasanjo struck what some have described as a terrible deal with the World Bank, involving a whopping $12 billion repayment, plus commissions everywhere.

Indeed, one should add that Obasanjo contradicted himself. He was close to the Bretton Woods institutions during his time in office. But now he disparages them, speaking about mere bachelors and spinsters coming here to dictate policies to African countries, policies he said led to our ruination.

He said:

“These brilliant boys will package everything very well academically. They tell us, and we take it, lock, stock and barrel, and we use it. For a country of 250 million people, it is boys and girls who are not even married, let alone manage a home, who will tell us what we will do to manage our people, our country, and we swallow it, and we destroy ourselves.

“World Bank and the IMF were not designed for us. They were not built by us. They were built before we became independent, and that’s the people who will determine what we do.

“(British Prime Minister James Callaghan received four euros per year for every sheep on his farm while the World Bank and IMF barred African nations from subsidising their own farmers)… debt is worse than leprosy because leprosy destroys only one person. Debt destroys generations.”

On the contrary, I posit that debt can build generations. In fact, debt has built generations.

All the countries that matter borrowed by leveraging their cash flows to get where they are. My earlier argument in this article stands.

The Western world has only played with peanuts in Africa, and we are not monkeys.

One could argue that recent engagements with China have been more promising and beneficial to Africa, and Nigeria in particular, because we can see the tangible results – roads, rail lines, airports and other infrastructure.

For more than three decades, most African countries have not seen funding for tangible projects but only for soft issues such as gender-based violence, job acceleration and business-enabling reforms.

To cap it, there is a video circulating online in which Obasanjo spoke about a certain Mrs Kruger, a World Bank/IMF executive who demanded a presidential welcome during his administration.

He spoke about how he sent her report to his then Economic Adviser, Prof Charles Soludo, who always rejected all their recommendations, and Mrs Ngozi Okonjo-Iweala, who always supported all their recommendations, given that she made a career in those institutions.

He said he would then blend both positions and strike a midpoint. He also warned Soludo never to show that he was against those institutions, otherwise “they will rub his nose in the dirt”.

So, Obasanjo is very aware of what is going on, and he knows that we are much smarter today.

He is only playing politics, and that is unfortunate, given where this country is today.

I would have thought he should put longstanding political differences aside and support progress for Nigeria, particularly on the back of reforms that no president was able to push through.

Why is he trying to turn back the hands of the clock for Nigeria by attempting to smuggle in a puppet by fair means or foul?