Kaduna In Chains: The Curious Case of Dr Nasir Aminu’s $ 350 Million World Bank Loan

No society can surely be flourishing and happy, of which a large part of the population is poor and miserable. – Adam Smith

The 2007 Fiscal Responsibility Act (FRA) has benefited all levels of government by allowing them to borrow cheap money as long as the markets are happy to provide it, subject to legislative approval. The law gave Kaduna state the opportunity to grant a record loan of $ 350 million to the World Bank to finance part of el-Rufai’s development plan. The two loan interest rates, 3.7% for $ 216 million and 2.2% for $ 134 million, were low enough to satisfy the FRA condition.

The National Assembly rejected the initial loan request in 2017. The three senators from Kaduna state declined to support the rationale for borrowing such a huge amount, given the state’s poor financial outlook. Lawmakers concluded that the details of the cost-benefit analysis of the loan were not viable. The refusal to support the loan request cost Senators Shehu Sani and Suleiman Hunkuyi their seats.

However, in 2020 the second application was surprisingly successful. But it was only after the state governor’s chief of staff caused an uproar during the Senate committee hearing. loan application.

It is wrong to present the debt profile of the State as being on the rise. The Debt Management Office (DMO) report for September 2020 ranks Kaduna second, behind Lagos, for subnational debt accumulation. The report puts the state’s total external debt at $ 570 million. Debt includes $ 15.5 million of the new Chinese loan and 75% of the $ 350 million loan from the World Bank. By comparison, a few months after the start of the el-Rufai regime in December 2015, the state’s external debt was estimated at $ 226 million. For Internally Generated Income (IGR), a source for the state to pay its debt, Kaduna is raising more money than before. In 2015, the state generated around 13 billion naira, but in 2019, the state generated around 44 billion naira. Yet over 50% of state revenue comes from oil-related transfers from the federal government. So being the tallest dwarf in town is no silver lining.


The state is currently funding interesting infrastructure projects with loans from China and other domestic sources, but assessing the impact of these projects is not a topic today. As the dust settles, having received three-quarters of the loan sum from the World Bank, a question arises. Why did el-Rufaia agree to borrow $ 350 million with unfavorable loan terms? At the cost of repetition, let me be clear on this particular issue.

The loan agreement includes a critical condition that the state must spend 78% of the $ 350 million on recurring expenses. This means that the state can only spend to pay for advice, training, and all kinds of fees, excluding forms of capital. The agreement is a dark gray area for the FRA condition that allows borrowing only for capital expenditure and human development.

In contrast, el-Rufai decided to lay off a third of the state’s workforce that could benefit from the loan agreement. The state has a poverty rate of 43% and an unemployment rate of 40%, before the pandemic. If given a choice, the median Kaduna resident would not vote to borrow $ 350 million, his future income, and would spend more than three-quarters of the amount on recurring expenses. Rationally, such a sum should be devoted to the financing of tangible investments, such as projects in electricity and the primary sectors, which, all other things being equal, would create jobs and prosperity.

For the remaining 22% of the loan, the condition states that it can only be spent on soft capital spending, not hard spending. This means that the state cannot use the loan to build World Bank financed infrastructure of any kind, i.e. there will be no construction of bridges, roads , schools, markets, water supply projects, etc. Contrary to the documented deal, el-Rufai told media that the loan was granted because a World Bank official saw the need to improve the state’s dilapidated infrastructure. Likewise, Senator Uba Sani explicitly committed to using the loan to build infrastructure.

Thus, with the loan from the World Bank, Kaduna’s subnational debt has more than doubled. She will have no tangible loan plan. Its workforce has shrunk, contributing to high unemployment and poverty rates. El-Rufai should be prepared to defend himself when accused of stealing the entire $ 350 million. Obviously, the public has not yet fully understood how unbalanced they are when it comes to efficient allocation of public finances.

But there is another question. Is the government’s growing debt profile sustainable? It depends on the economy of the state. If Kaduna were to default on its subnational debt, the federal government would be legally responsible for the state bailout.

In October 2020, Fitch, a global credit rating agency, classified Kaduna’s debt indicators as low, with a grim financial outlook. The agency reports that the main sectors that boost the state’s economy are the primary and service sectors. However, the state only focuses on the rich mineral resources to attract foreign investors. However, the state reported a paltry inflow of capital of $ 4 million in 2020. By comparison, the state of Niger, with the lower debt burden, attracted $ 16.4 million. At the same time, Lagos had a capital inflow of $ 8.6 billion in the same year. The high rate of unemployment and poverty of the rapidly growing population of 8.2 million add to the state’s low socio-economic standards. Thus, it will be difficult for the State to maintain its growing debt profile.

In the world of el-Rufai, a sustainable strategy to improve the state’s financial outlook was for the federal government to impose a tax obligation of N 1000 on every adult as part of the citizenship obligation. He didn’t think of proposing higher taxes for affluent residents or taxing the profits of companies that are awarded big contracts. El-Rufai should be recommended to learn about Adam Smith’s fiscal canons. Frankly, given his unbearable efforts to educate himself, I doubt reading gives him any wisdom.

In short, the logic of the World Bank loan is not to unleash the state’s finances, but rather to chain its finances. And the fallacious ideas about re-establishing medieval taxation are part of the process of pushing the state down this insidious path. The truth is that the real consequences of el-Rufai’s policies will not be known until he is long gone.

Dr Nasir Aminu is Senior Lecturer in Economics at Cardiff Metropolitan University.

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