Debt Profile: Avoiding strains of trap by revenue base expansion
While borrowing has been justified to be a reasonable resort to address certain strains in the economy, it remains a fact that when they are not sustainable, only further strains are to be expected. This is particularly of stiffer impacts when the realities reflect misapplication and/or mismanagement of borrowed funds.
Nigeria, recently, has been held up in the midst of fears of rising debt profile. Critical observations have seen the expression of fear over the threats that may lie ahead of the Country with the heaping of debts. The fears have been sendimented with reflections of not only misapplication of borrowed funds, but it’s mismanagement, and at critical point, its sustainability. Although, the arguments that Nigeria’s debt is still within sustainable limit, has been a recurrent case, particularly on the part of the government for justification of its borrowings, fears of the Country sliding into a debt trap have not ceased. Reflections of no tangible impacts of the borrowings acquired in their large sums, recently, have further put forth reservations over increasing resort to loans. With plans of additional borrowings to finance the 2022 budget deficit, Nigeria’s debt stock has been projected to hit N45trillion.
Against the quick turn to borrowings, one submission which has begun to reverberate with sense of rational justifications has been the necessity to broaden the base of internal revenue generation (IGR) to cover-up the widened revenue gap which has made recourse to borrowings a quick turn for the Government.
Although, borrowings may not be peculiar to Nigeria, yet the turn of the Country with her enormous advantages, both in human and natural resources, would speak much of paradox, when rather than leveraging on these resources, she leans more on borrowings to fund capital projects. Fears of resorting to borrowings to fund recurrent expenditures and other non-profit yielding projects have not ceased from the landscape.
Beyond Nigeria, the fear of deeper strains for third world economies, particularly in sub-saharan region has been reverberating with recent indices. A report of a Debt Sustainability study commissioned by the Open Society Initiative for West Africa (OSIWA) and the Nigerian Economic Summit Group (NESG) had noted that member nations of the Economic Community of West African States (ECOWAS) faced risks of debt crisis, unless urgent steps were taken by their various governments to address rising debts.
“In ECOWAS, five major research issues emanated from the debt situation. To begin with, numerous ECOWAS countries benefitted from debt elimination during the debt relief tsunami of 2005- 2008. However, public debt has increased to the point where it is approaching crisis proportions just over a decade later. Debt sustainability needs corrective actions such as debt restructuring and the discovery of viable debt alternatives,” the report noted.
The report which was presented by the Chairman of the OSIWA-NESG DMR, Dr. Taiwo Oyedele, indicated that the rising debt Portfolio of the sub-region was directly linked to the sustained deficit fiscal positions of member nations.
“The overall fiscal environment in ECOWAS has remained in an uninterrupted deficit since 2009. The COVID-19 pandemic, which engendered a global disruption in the economy’s demand and supply side has consequently led to an unprecedented increase in fiscal deficit to a tune of 6.8 percent of the nominal GDP (Gross Domestic Product) The fiscal deficit of ECOWAS in 2020 expanded by 53 percent to $46.22 billion. Meanwhile, the fiscal deficit expanded by 17.6 per cent, 122.4 percent and 170 percent in Nigeria, Ghana and Cote d’Ivoire in order of the size of their economy, respectively. This makes Nigeria, the country with the largest fiscal deficit in the region in 2020, while Ghana recorded the largest increase in the budget deficit in the year,” it stated.
At the launch of the report of the Debt Sustainability study commissioned by the Open Society Initiative for West Africa (OSIWA) and the Nigerian Economic Summit Group (NESG) under the Debt Management Roundtable (DMR), in Abuja, on Monday, the Director-General (D-G) of the Debt Management Office (DMO), Ms. Patience Oniha, called on African government to rather look inwards to address the rising profile of debt accumulation.According to her, the stark realities confronting Sub-Saharan Africa were such that only a new focus on revenue generation from within, could save the region from a debt trap.
“The timing of the launch of the report could not have been more appropriate with the global debt levels already rising pre-COVID-19 and still growing since the COVID-19 pandemic started in the year 2020. Concerns around debt sustainability have expectedly heightened. According to the Word Bank’s World Economic Outlook, ‘Globally, sovereign debt grew from 49. 1 per cent of GDP in 2014 to 57. 9 percent in 2019. And in Sub-Saharan Africa, from 35.1 per cent of GDP in 2014 to 55. 4 percent in 2019.’ The respective figures for 2021 were 66.7 percent and 60. 3 percent. The indications are that the trend will continue as the economic consequences of COVID-19 may linger for a longer period, coupled with the increased economic pressures in the form of rising inflation from higher food and energy prices caused by the Russia-Ukraine War,” she noted, observing that given the current situation, most of the adversely affected nations would continue to borrow but that members of ECOWAS should seek the most credible alternative to borrowing, which she identified as expansion of the revenue base.
“Concerns about debt sustainability and the need for restructuring have been stronger for Sub-Saharan Africa, due to high debt service costs when compared to revenues. It is therefore, an absolute necessity for West African countries to place sharper focus on domestic resource mobilisation. Nigeria is already on that path through the Strategic Revenue growth Initiative (SRGI) and the Finance Acts that have been enacted since 2019,” she said.
The enormity of resources in Nigeria puts her at advantage to optimise the benefits of internal revenue expansion as the panacea to scale through strains in the economy. Against dwelling at the edge of quick resort to borrowings, expanding the revenue base of the Country’s economy has remained justifiable to accrue substantial sources of fund to execute capital projects bearing significance to growth of the Country’s economy. The constraints of rising debts and the impacts of servicing same have begun to blow tough on the Country’s economy, particularly when over 95percent of her revenue is feared to be going into debt servicing in recent times.
The call for diversification of the economy to spread its base from the heavy reliance on oil has been reverberating over time. However, the drive towards same has been largely tardy and unsystematic.
Coordinating efforts concertedly to give reflections to diversifying Nigeria’s economy for robust revenue base cannot be overemphasised. If diversification is the way to go to redefine the status of the Nigerian economy, it is pertinent to state that the posture of the government to same is still largely puerile to get the desideratum. The right political will with the force of systemic approaches, are sine qua non to reorder the path of the economy unto the pedestal of virile conformity to the reality of productivity for stronger revenue base, than the alluring, but killing resort to borrowings.
