Debt threat: Nigerian Govt must tread cautiously
While outcries keep abounding over rising debt profile and the burden of servicing same, the trend seem not to be enough to bring an end to quick turn to borrowing in any near future. It is apparent the Government in Nigeria has become addicted to borrowing syndrome, while what happens to the effectiveness of the funds are matters by the way. Although borrowing itself cannot be totally condemned, yet the misapplication, mismanagement and indiscriminate resort to same may inflict blows with lasting impacts of economic negativities.
Recently, the sustainability question of Nigeria’s debt has become much pronounced in view, particularly as it began to come to light, the strains of servicing debt with over 90percent of the Country’s revenue. Despite the red signals, the fact that more debt would not be incurred may not be out of option for the Government.
Indications that Nigeria would wallow deeper in debt became stronger when on Monday, 29th, August, 2022, the Federal Government disclosed a proposed N19.76trillion budget for 2023, with a deficit hovering between N11.30trn and N12.41trn. The projected deficits between N11.30trn and N12.41trn in 2023, is up from N7.35trn in 2022. The figure represents 5.01 per cent of the estimated GDP (Gross Domestic Products), above the 3 per cent threshold stipulated in the Fiscal Responsibility Act, 2007.
Borrowings to fund budget deficits have been decried largely in view of rising debt profile and the burden of debt servicing recenfly. Nigeria’s debt profile has been projected to hit N45trn by end of 2022, as Debt-to-GDP ratio stands at 23.27 per cent. Although stakeholders have lamented that the larger chunk of revenue now goes for debt servicing, the Federal Government has held on the argument that the Country’s Debt to GDP ratio is still within sustainable limits.
The Minister of Finance, Budget and National Planning, Zainab Ahmed, who made the proposed 2023 budget estimate known, decried that the government might be unable to provide for treasury funded capital projects next year. According to her, the inability to provide for treasury funded capital projects next year would largely be informed by dwindling revenue shortfalls and payment of subsidies on PMS.
The Minister in her presentation to the House of Representatives’ Committee on Finance at the hearing on the proposed 2023-2025 Medium Term Expenditure Framework and Fiscal Strategy Paper, pointed out that crude oil production challenges and PMS subsidy deductions by NNPC Limited constitute a major threat to the country’s revenue growth targets.
“In this scenario, the budget deficit is projected to be N11.30tn in 2023, up from N7.35tn in 2022. This represents 5.01 per cent of the estimated GDP (Gross Domestic Products), above the 3 per cent threshold stipulated in the Fiscal Responsibility Act, 2007,” she noted.
In another scenario, she said, “Given the severely constrained fiscal space, budget deficit is projected to be N12.41tn in 2023, up from N7.35tn budgeted in 2022, representing 196 per cent of total FGN revenue or 5.50 per cent of the estimated GDP. This is significantly above the 3 per cent threshold stipulated in the Fiscal Responsibility Act 2007 and there will be no provision for treasury funded MDA’s capital projects.” She stated further that under the first scenario, the government’s projected revenue for 2023 is N6.34tn, out of which only N373.17bn is expected from oil related revenue, while the balance of N5.97tn will come from non-oil sources.
In the second scenario, the Minister said, “In addition to subsidy reform, this scenario assumes an aggregate implementation of cost-to-income limit of Government Owned Companies. With these, the 2023 FGN revenue is projected at N8.46tn out of which N.99tn or 23 per cent is projected to come from oil revenue sources.”
Accroding to the Debt Management Office (DMO) Nigeria’s total public debt stock increased to N41.60trn in the first quarter of 2022. “The total public debt stock as at March 31, 2022, was N41.60tn or $100.07bn, according to the Debt Management Office. The amount represents the domestic and external debt stocks of the Federal Government of Nigeria, the thirty-six state governments and the Federal Capital Territory. The comparative figures for December 31, 2021, were N39.56tn or $95.78bn,” the DMO had statedin its report. According to the DMO, the total public debt stock includes new domestic borrowing by the FGN to partly finance the deficit in the 2022 Appropriation Act, the $1.25bn Eurobond issued in March 2022 and disbursements by multilateral and bilateral lenders.
In March 2022, a DMO document signed by the Director-General, DMO, Patience Oniha, mentioned that Nigeria’s total debt stock is likely to reach N45trn as the DMO plans to borrow an additional N6.39tn to finance the 2022 budget deficit. In the document, the Director-General, DMO, Patience Oniha, explained that the overall deficit in the 2022 budget was N6.30tn, representing 3.46 per cent of the country’s GDP. Oniha had said that the budget deficit was to be financed mainly by borrowings from both domestic and foreign sources, as well as privatisation proceeds.
Lamenting the ugly trend of the dangers of heaping debts, the Lagos Chamber of Commerce and Industry (LCCI) had earlier in August said Nigeria is struggling to service these debts due to revenue mobilisation challenges and an increased fuel subsidy burden. The trend, according to the LCCI, was disturbing, given that debt servicing alone was higher than actual retained revenue in the first four months of 2022. “There are already concerns that most, if not all, of the assumptions in the Medium-Term Expenditure Framework (MTEF) 2023-2025 will be missed as we continue to experience unprecedented levels of disruptions to supply chains and agricultural production. The 2022 budget assumptions have already fallen short in terms of inflation, exchange rate, and GDP growth rate and all of these assumptions have become inadequate.Nigeria’s Debt-to-GDP ratio now stands at 23.27 per cent, as against 22.43 per cent on Dec. 31, 2021 On the path of caution, we urge the Federal Government to discontinue this unsustainable pattern,” the President, LCCI, Michael Olawale-Cole, had said.
It is clear enough that the Country is threatened with the troubles of heaping debt. Although borrowing have its justifiable grounds, yet such must be within considerable limit, and its application must be within defined pattern of productive usage framework for profound projects with tangible and concrete deliverables, to bear returns to justify the loans acquired for the specified purposes. The Nigerian case seem not to be reflecting any close resemblance of same. Rather, deficiencies of indiscriminate resort to borrowings, mismanagement and misapplication have formed the bedrock for destabilising forces – troubles informing the outcries of stakeholders recently.
The need to act responsibly and tread cautiously with borrowings has become imperative, as the Country is set headlong for the precipice, should the prevailing syndrome continue unabated. It is now time to restructure the borrowing orientation of the Country, to steer clear from indiscriminate resorts and obtaining loans that are ridiculously wanting of cost effectiveness, with associated gross misapplication and mismanagement which have characterised their usage, heaping for the Country, a debt burden which in the long would be unsustainable, and the effects of which do not bear any tangible outcomes to show for their relevance.
