2021 budget: Senate approves N2.34trn foreign loan request

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…to push public debt above N35trn

…FG to finance infrastructure and other priorities — DMO

…Govt needs reforms to cut down on expenditure — Former DG, LCCI

…borrowing not unsustainable — Analysts insist

By Ariemu ogaga, Abuja

The National Assembly on Wednesday approved the request of President Muhammadu Buhari, to borrow N2.34trillion to partly finance the 2021 federal budget size of N13 trillion.

This resolution of the Senate follows the approval of its Committee on Local and Foreign Loans as presented by the Chairman, Clifford Ordia.

The Committee recommended that the Senate approves Buhari’s request for the issuance of $3billion but not more than $6.18billion Eurobond in the International capital market.

The external borrowing of N2.34trillion, according to the panel, should be for the financing of part of the deficit authorised in the 2021 Appropriation Act.

The Committee also recommended that the Senate should approve that the amount authorised may be raised from multiple sources such as the International Capital Market and any other Multilateral or Bilateral sources as may be available.

It also recommended that the Senate directs the Minister of Finance, Budget and National Planning, the Director-General of the Debt Management Office and the Governor of the Central Bank of Nigeria to submit to the National Assembly within 10 working days (excluding the day of the close of trading) a letter containing the United State Dollars amount so raised and received as a result of the above approval together with the applicable exchange rate.

However, the Debt Management Office (DMO) on Wednesday in a statement on its website stated that, “On May  18, 2021, His Excellency, President Muhammadu Buhari submitted a request to the National Assembly (NASS) for a resolution on the new external capital raising of N2.34 trillion which is provided in the 2021 appropriation Act.

“In light of the President’s letter, the senate and the House of Representatives assigned their respective oversigh committees on public Debt namely; the Senate Committee on Local and Foreign Debt and the House of Representatives’ Committee on Aids, Loans and Debt Management, for further consideration of the President’s request.

“The two committees are expected to present reports of their deliberations at a Plenary Session to the two chambers of the National Assembly to consider and approve the issuance of the resolution as request by the DMO (Establishment Act, 2003).

“Upon the issuance of the National Assembly’s resolution, the executive arm of government will then be authorized to raise the funds which will be utilized to finance infrastructure and other priority across the country.”

Under Buhari, Nigeria’s debt profile has continued to increase.

The DMO had disclosed that Nigeria’s total public debt stock that comprises of the Debt Stock of the Federal Government of Nigeria (FGN), 36 State Governments and the Federal Capital Territory (FCT) stood at N33.11 trillion or $87.239 billion as at March 31, 2021.

This is an increase of 0.6 per cent from N32.915 trillion reported by the debt office in 2020 full year.

The report by DMO stated that debt stock also includes Promissory Notes in the sum of N940.220 billion issued to settle the inherited arrears of the FGN to State Governments, Oil Marketing Companies, Exporters and Local Contractors.

According to DMO, “Further analysis of the Public Debt Stock, shows that the increase was in the Domestic Debt Stock which grew by 2.11per cent from N20.21 trillion in December 2020 to N20.637 trillion as at March 31, 2021.

“The FGN’s share of the Domestic Debt includes FGN Bonds, Sukuk and Green Bonds used to finance infrastructure and other capital projects as well as the N940.220 billion Promissory Notes.

“External Debt Stock declined from $33.348 billion as at December 31, 2020 to $32.86 billion due to the redemption by Nigeria of the $500 million Eurobond in January 2021.”

The former, Director- General, Lagos Chamber of Commerce and Industry (LCCI), Mr. Muda Yusuf stated that the rising debt profile of Nigeria raises serious sustainability concern with the country’s revenue challenge.

He, however called for the political-will to cut down on expenditure.

He disclosed that there is urgent need to undertake reforms that could downscale the size of government, reduce cost of governance and ease the fiscal burden on government.

Yusuf explained that the emphasis on borrowing should be on concessionary financing,  as opposed to commercial debts which are typically very costly.

He further urged the federal government to use the acquired loan strictly on capital projects to upscale the production capacity of the economy.

“I suppose the request is part of the borrowing plan to finance the deficit in the 2021 budget.  The plan has been approved by the National Assembly, both in the Medium Term Expenditure Framework (MTEF) and the 2021 Appropriation Act.

“It is not an entirely new proposition.  However, the rising debt profile of government raises serious sustainability concerns.  Although government tends to argue that the condition is not a debt problem, but a revenue challenge.  But the truth is that debt becomes a problem if the revenue base is not strong enough to service the debt sustainably. It invariably becomes a debt problem.

“It is important to ensure that the debt is used strictly to fund capital projects that would strengthen the productive capacity of the economy.  This is position of the Fiscal Responsibility Act,” he stated.

Responding also, former President/Chairman of Council of the Chartered Institute of Bankers of Nigeria( CIBN), said federal government is faced with challenges of cost overrun traceable to inflationary pressure.

Prof Ajibola explained to Nigerian NewsDirect that if the N2.34trillion borrowing is designed to finance 2021 budget deficit of N5trillion, then it is in order.

He noted that borrowing for project financing with well articulated performance matrix for repayment purposes is justified in an environment like Nigeria.

He described borrowing to finance consumption as a bad financing template.

“The supplementary budget of close to N900billion is a reflection of the challenges of cost overrun and variances at the various levels in the MDAs, not to rule out the possibility of unanticipated expenses at the point of presenting the budget for approval. Cost overrun is traceable to inflationary pressure and Naira devaluation.

“We should remember that one of the key elements of 2021 budget is fiscal deficit of about N5trillion, expected to be financed through local and foreign borrowings. If this is the case for the proposed  N2.34trillion borrowing, then it is in order,” he said.

In addition, the Vice Chairman, Highcap Securities, Mr. David Adonri noted that, federal government’s resort to foreign loans for infrastructural development is unwise.

He also stated that the increasing Nigeria’s public debt is unsustainable.

According to him, “FGN’s borrowing is alarming. The Minister of Finance stated recently that 97% per cent of revenue was used to service debt in first quarter of the year.

“Nigeria is now in the deep water of debt trap. The damage has been done already and with the ambitious debt issuance program of FGN, the damage is intensifying with undiminished intensity. With the way things stand, sovereign default in near future cannot be ruled out.

“The major problem is high foreign component of Nigeria’s debt which must be repaid in hard currency. Record shows that the foreign debt is not channelled into projects that will generate hard currency and hence facilitate repayment.

“Due to the sovereign power of government to create domestic money, the domestic public debt can be extinguished readily even if at the expense of precipitating hyperinflation.

“So far Nigeria’s foreign debt is over $33billion and may have surpassed the dangerous level where President Obasanjo extricated us from.

“We are sinking deeper into the mess with reckless approvals by the National Assembly for the executive to continue its borrowing spree.

“Resort to foreign borrowing by FGN to develop the country, especially infrastructure is unwise. No developed country borrows externally to finance domestic development. Instead, they issue domestic debt into which foreigners can invest so as to domesticate the repayment obligation.

“Secondly, Nigeria has abundant natural resources and skilled labour that can be mobilized locally to develop critical engineering infrastructure which is the missing link.

“Resort to importation of all factors required for development is behind Nigeria’s insatiable appetite for foreign loans.

“Nigeria’s mounting public debt is unsustainable. Other financing options like invest trust funds can be mobilized for projects finance instead of debt,” he said.