In a statement on Tuesday, Festus Akanbi, spokesman of the minister of finance, said Abraham Nwankwo, director-general of the DMO, provided clarifications on the proposed foreign loans while speaking on Sunrise Daily, a Channels TV live programme.
Last week, President Muhammadu Buhari sent the proposal to the national assembly for approval, but the senate rejected it on Tuesday.
Nwankwo explained that the loans, which will cover a period of three years, would help in addressing the biting infrastructure deficit in the country.
“When you are in this kind of economic situation, you have to decide where you want to start addressing the problem,” he said.
“You then come to the conclusion that the most critical point to start is to deal with infrastructure problem. If you deal with infrastructure problem, the cost of power will be lower, the cost of transportation will be lower, and the cost of most other services will be lower.”
According to him, one of the features of the proposed loan is the low concessionary nature of the interest rate, which is fixed at 1.5 per cent.
He said this arrangement differed from previous loan arrangements with the Paris Club of creditors, which came with floating interest rates as high as 18 per cent.
He also explained that the facility would help to revive infrastructure like railways which will smoothen movement of heavy goods across the country.
He said tackling infrastructure deficit would force down costs of goods and services on the long run, emphasising that the development would have a significant impact on the price level in the economy.
“That impacts the economy by bringing down the general price level, (they call it the consumer price index, which is a classical measure of the price level and the rate of inflation.),” he said.
“When you do this, the Central Bank of Nigeria will set the monetary policy rate low, because all over the world, the central bank knows it has to put the monetary policy rate high enough to catch up with inflation rate, otherwise we will be talking of negative real rate of interest which destroys the economy.
“So the way to go about it is that you have adequate infrastructure, power road, transportation ICT. All these make the cost of production in the economy much lower and when this happens, the cost of goods and services will be lower and then inflation will start coming down. And if inflation comes down, the monetary policy rate will be lower and this will translate to a lower lending rate. That is the sequence.”
He said “the $30bn was actually for a three year-period and that it would run from 2016-2018, and to be repaid in 20-30 years time.”
He said “with this arrangement, it will not be difficult for the country to repay”.
Speaking on how the $30bn would be spent, Nwankwo stated that $10bn would be spent per annum for three years, and that it would be targeted at building infrastructure in all states of the federation, adding that the main focus would be on power generation, rail and road renovation and construction.