Nigeria’s unending resort to local and foreign borrowings to fund budget deficits and infrastructural projects has been of concern to the Nigerian public in recent times.
Some stakeholders have expressed concern that the borrowings by both the Federal Government and state governments, if unchecked, could create an avoidable debt burden for future generations.
The Debt Management Office (DMO) recently announced that the country’s public debt, which stood at N39.55 trillion as at Sept. 2021, was now N41.6 trillion.
The amount represents the total external and domestic debts of the Federal Government, the 36 state governments and that of the Federal Capital Territory (FCT).
Findings by the News Agency of Nigeria (NAN), however, reveals that the total debt stock is likely to exceed N45 trillion before the year runs out, as the DMO plans to borrow additional six trillion Naira to finance the 2022 budget deficit.
An analysis by the DMO pegs the overall deficit in the 2022 budget at N6.30trillion, representing 3.46 per cent of the country’s Gross Domestic Product (GDP).
A breakdown of Nigeria’s public debt stock shows that 37.82 per cent is external, while the balance of 62.18 per cent is domestic.
However, with the country’s national debt in relation to Gross Domestic Product (GDP) ratio at 22.80 per cent, some analysts suggested that the debt situation was still within reasonable limits.
According a study conducted by the World Bank, a Debt-to-GDP ratio that exceeds 77 per cent for an extended period of time may result in an adverse impact on economic growth.
But the huge revenue that goes into debt servicing still remains an issue of concern for many Nigerians.
Sometime last week, the Minister of Finance, Mrs Zainab Ahmed, disclosed that that between January and April the country generated a revenue of N1.63 trillion but expended N1.94 trillion in debt servicing.
The figures were contained in the Draft Medium Term Expenditure Framework (MTEF) for 2023-2025, presented by the minister.
That disclosure elicited diverse reactions from stakeholders, most of whom expressed displeasure about the debt situation.
A member of the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN), Robert Asogwa, had earlier expressed worry over the rising debt, particularly the increasing accumulation of eurobonds in the external debt component.
According to Asogwa, the unexplained government preference of eurobonds at high interest costs, with the associated exchange rate risk may likely hurt Nigeria sooner than anticipated.
He said that poor revenue growth in a period of expanding government expenditures had continued to soar the budget deficit levels in the first quarter of 2022, similar to the trend witnessed in 2021.
According to Dr Tope Fasua, an Economist, the government will need to optimise revenue generation to cut down on borrowings.
Fasua urged the private sector to always cooperate with the government in its revenue drive rather that antagonise such initiatives.
Fasua urged the Federal Government to take concrete steps to boost its revenue generation so as to reduce budget deficits.
Mr Okechukwu Unegbu, a past President of the Chattered Institute of Bankers of Nigeria (CIBN), decried the huge deficit in the budget and the dependence on loans to fund it.
He urged the government to look inwards by encouraging production and value addition to the various natural resources in the country, reduce importation and encourage consumption of locally made products.
“Our debt servicing ratio is high; we are putting almost 70 per cent of our earnings on debt. This is worrisome,” he said.
Also , the Lagos Chamber of Commerce and Industry (LCCI), in a recent report critiqued the Federal Government’s “over-dependence” on borrowings.
The chamber said, in the report that staying within the current Debt-to-GDP threshold was an unreliable means of calibrating Nigeria’s current debt burden.
According to the LCCI, government must review its borrowing parameters on the basis of the country’s Debt-to-Revenue ratio, which currently calls for concern.
However, the DMO Director-General, Patience Oniha, said that the Federal Government was aware of the country’s relatively high Debt Service-to-Revenue ratio and had published the figures over the years.
According to Oniha, the increased public debt includes new borrowings by both the Federal Government and state governments.
“N2.57 trillion will come from domestic sources, N2.57trilllion from foreign sources, N1.16trillion from multilateral and bilateral loan drawdowns and N90.7billion from privatisation proceeds.
“Recurrent (non-debt) spending, estimated to amount to N6.9 trillion, is 40 per cent of total expenditure and 20 per cent higher than the 2021 budget.
“Aggregate capital spending of N5.96 trillion is 35 per cent of total expenditure,’’ she said.
She said that the 2022 aggregate Federal Government spending was projected at N17.1 trillion, which is 18 per cent higher than the 2021 budget.
The director-general added that debt servicing in the 2022 budget was N3.6 trillion, amounting to 21 per cent of total expenditure and 34 per cent of total revenue.
She said that the country’s low revenue base and sole dependence on crude oil receipts were primarily responsible for the debt situation.
She explained that the country did not really have a debt problem, but a revenue problem, adding that the government was already taking practical steps to improve revenue and reduce borrowings.
She added that the need to develop infrastructure, create jobs and grow the economy made it imperative for the country to borrow.
She, however, said that the government was already taking steps to increase and diversify its revenue sources as well as reduce its dependence on borrowings.
She added that borrowings were essentially for Capital Expenditure and Human Capital Development as specified in the Fiscal Responsibility Act 2007.
According to her, the level of insecurity in the country has also resulted to increased borrowings.
She emphasised that the most viable solution to the country’s fiscal challenge was to grow sources of revenue and plug all leakages. (NAN)(
