Economists question Oyo N200bn bond timing

Economists are raising concerns about the Oyo State House of Assembly's approval of a proposed N200 billion infrastructure bond, questioning its timing due to the upcoming election cycle. Critics warn of potential accountability issues, the risk of funds being used for election campaigns, and doubts about the state's capacity to successfully raise the bond from the capital market.

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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.

Governor Seyi Makinde requested the bond to refinance short-term loans used for infrastructure projects, stating it would restructure the state's debt, lower servicing costs, and create fiscal space. The state noted existing loans carry annual interest rates of 22-26 percent, while the proposed bond is expected to have a fixed rate of 17-19 percent.

However, economists like Dr. Ayo Teriba, CEO of Economic Associates, find the timing questionable. He argues that entrusting borrowed funds to politicians nearing elections is problematic, regardless of the financial sense. Teriba doubts that issuing houses would readily support a N200 billion bond for an administration with less than a year left in office, suggesting that market approval is not guaranteed despite legislative consent.

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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.

Professor Akpan Ekpo of the University of Uyo echoed these sentiments, describing the plan as questionable. Both economists advocate for prudence, suggesting that any refinancing should be handled by the incoming administration after the elections to ensure greater accountability and avoid saddling future governments with immediate obligations.

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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.