Economists raise concerns over timing of Oyo N200bn bond
Economists have questioned the wisdom of the Oyo State House of Assembly approval of a proposed N200bn infrastructure bond, warning that the move comes at a politically sensitive time and raises concerns about accountability, election spending, and the state’s ability to raise the funds from the capital market successfully.
The Assembly recently approved Governor Seyi Makinde’s request to raise the bond from the capital market to refinance short-term loans used to fund infrastructure projects across the state.
According to the governor, the refinancing plan would restructure the state’s debt profile, lower debt servicing costs and create additional fiscal space for developmental programmes.
The state said the existing loans attract interest rates of between 22 and 26 per cent annually, while the proposed bond is expected to carry a fixed rate of between 17 and 19 per cent.
However, economists who spoke with The PUNCH expressed scepticism over the timing of the borrowing plan, particularly as the administration has less than a year left in office.
The Chief Executive Officer of Economic Associates, Dr Ayo Teriba, said although elected officials have the constitutional authority to make such decisions, the timing of the proposed borrowing makes it questionable.
Teriba said, “You shouldn’t entrust politicians who have elections to fund, who have campaigns to fund, with borrowed funds. It’s not about whether it’s sensible or not. They are the best judges of what is sensible. But the timing leaves a question mark and makes it look questionable.”
He argued that investors and issuing houses might be reluctant to back a N200bn bond for an administration approaching the end of its tenure.
“I doubt that any issuing house will be pushing a N200bn bond for a governor who has one year left in office and with elections around the corner.
The Assembly may approve it, and the governor may sign it, but that is not a cheque you can cash in the bank. They still have to go to the market and issue a prospectus,” Teriba said.
The economist also urged state residents to demand greater prudence, suggesting that any refinancing programme should be left to the incoming administration.
“Even if it was necessary to issue such a bond, let it be after the election. Let it be by the incoming government and not the outgoing government. That will be a test of prudence,” he said.
Teriba further questioned the rationale for saddling a future administration with fresh obligations when the current government was nearing the end of its mandate.
“Why do you want to borrow that kind of money when you have one year to your exit? They should wait and let the incoming government address it,” he added.
Also speaking, a Professor of Economics and Public Policy at the University of Uyo, Akpan Ekpo, described the refinancing proposal as illogical, insisting that the state should renegotiate repayment terms with its creditors instead of taking on fresh debt.
“It doesn’t make sense to borrow to refinance debt. Rather, they should have gone to their creditors to renegotiate and reschedule the payment. If you cannot pay, you can renegotiate. It is not fair to borrow to pay what you owe,” Ekpo said.
The economist noted that governments typically borrow to finance new projects and infrastructure rather than to settle existing liabilities. “If they are borrowing to pay a debt they already owe, it doesn’t make sense to me at all. Borrowing should be for development projects, not simply to pay off existing debt,” he said.
Ekpo also expressed concern over the timing of the planned borrowing, warning that public spending often rises in periods close to elections. “My worry about borrowing when it is so close to elections is that when you borrow, you are going to spend the money. They are borrowing to pay debt, not borrowing to finance new projects. It doesn’t make sense to me at all,” he stated.
Ekpo further criticised the role of state legislatures in approving borrowings, arguing that assemblies often align with the preferences of incumbent governments. “If the House wants to be very rigorous and look at it critically, they may say no. But for the most part, they give legitimacy to what the government wants,” the economist said.
On his part, the Director of the Public Sector Initiative at Lagos Business School, Prof Franklin Ngwu, acknowledged that refinancing could help the state reduce interest costs if it successfully replaces expensive loans with cheaper long-term debt.
He said, “If they borrowed at a higher interest rate and can now issue a bond at a lower rate, they can pay off the old loan and save money. The saved money can then be deployed to development priorities of the state.”
However, Ngwu stressed that concerns remained over transparency and accountability, especially given the limited time left in the administration.
“The government has less than one year left, and that brings issues in terms of accountability and transparency in the management of these bonds. What guarantee do we have that all the money raised will be used to offset the loans and not be diverted to other purposes?” he asked.
Ngwu added that the ultimate assessment of the borrowing plan would depend on the details of the transaction and the actual utilisation of the funds.
“What is important is not really the loan itself but the usage of the loan. If they are using it for productive activities, then it is fine. But if it is just to borrow and pay off debt without clear accountability, then there are legitimate concerns,” he said.
Credit – Cable
