Nigeria’s external, domestic debts hit N39.55trn
..Rising debts portend sustainability concerns — Muda Yusuf
…Borrowing must be project-tied for efficiency — Akinola
Abimbola Abatta and Ariemu Ogaga
Nigeria’s total external and domestic debts, according to the Debt Management Office (DMO), hit N39.55trillion in December, 2021.
The amount, which represented the debts of the Federal Government, 36 state governments as well as the Federal Capital Territory (FCT), increased by over N1trillion when compared to the country’s September 2021 debt stock of N38 trillion.
Speaking on the debt situation on Thursday, the Director-General of the DMO, Patience Oniha, revealed that the increased public debt include new borrowings by both the Federal Government and state governments.
According to Oniha, the new borrowings were raised from diverse sources, which include issuance of Eurobonds, Sovereign Sukuk and Federal Government of Nigeria Bonds.
She said, “For the Federal Government, it would be recalled that the 2021 Appropriation and Supplementary Acts include total new borrowings of N5.48 trillion to part-finance the deficits.
“Borrowing for this purpose, and disbursements by multilateral and bilateral creditors account for a significant portion of the increase in the debt stock.
“These Capital raisings were utilised to finance capital projects and support economic recovery,” she said.
Noting that the Federal Government is mindful of the relatively high Debt-to-Revenue ratio, she said various measures have been initiated to increase revenue.
“With the total Public Debt-to-Gross Domestic Product ratio of 22.47 per cent, the debt ratio still remains within Nigeria’s self-imposed limit of 40 per cent.
“This ratio is prudent when compared to the 55 per cent limit advised by the World Bank and the International Monetary Fund (IMF) for countries in Nigeria’s peer group.
“The Federal Government is mindful of the relatively high Debt-to-Revenue ratio and has initiated various measures.
“The measures are to increase revenue through the Strategic Revenue Growth Initiative and the introduction of Finance Acts since 2019,” she added.
Rising debts portend sustainability concerns — Muda Yusuf
Reacting to the development, the Chief Executive Officer, Centre for the Promotion of Private Enterprise (CPPE), Dr Muda Yusuf, said the rising debt profile of Nigeria portend serious sustainability concern.
Yusuf advanced that the debt must be used strictly to fund capital projects, especially infrastructure projects that would strengthen the productive capacity of the economy.
He urged that the size of government and cost of governance should be scaled down while advocating for concessionary financing, as opposed to commercial debts which, he noted, are typically costly.
According to him, “The rising debt profile of government raises serious sustainability concerns. When we take account of borrowings from the CBN and the stock of AMCON debt, the debt profile would be in excess of N50 trillion. There is also the looming huge supplementary budget request of N2.55 trillion for PMS subsidy.
“Although government tends to argue that the conditions was 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.
“Government actual revenue can hardly cover recurrent budget, which implies that the entire capital budget is being funded from borrowing. This is surely not sustainable.
“What is needed is the political will to cut expenditure and undertake reforms that could scale down the size of government, reduce governance cost and ease the fiscal burden on government.
“It is important to ensure that the debt is used strictly to fund capital projects, especially infrastructure projects, that would strengthen the productive capacity of the economy. This is position of the Fiscal Responsibility Act.
“Additionally, emphasis should be on concessionary financing, as opposed to commercial debts which are typically very costly.
“It is imperative for the country to operate as a true federation which it claims to be. The unitary character of the country is making it difficult to unlock the economic potentials of the sub-nationals. It is perpetuating the culture of dependence on the federal government.
“It is necessary to scale down the size of government and cost of governance. Fiscal sustainability is driven by both cost and revenue. Therefore managing the major drivers of cost and revenue is imperative.
“As far as possible, the government should push back in sectors or activity areas where the private sector has capacity to deliver desired outcomes. We should see more concessioning and privatisation at all levels of government. This would allow for the infusion of more private capital into the infrastructure space,” he stated.
Borrowing must be project-tied for efficiency — Akinola
On the part of the Former President, Chartered Institute of Bankers of Nigeria (CIBN), Prof Segun Ajibola, the borrowing should be tied to specific project and have the desired multiplier effects.
Prof. Ajibola also underscored the need to trace the public debts to projects that generate returns as well as stimulate growth and development.
In his words, “Every jurisdiction borrows to support growth and developmental aspirations.
“The developed and industrialised economies of USA, UK and indeed the G-7, London Club of Creditor nations were and some are still indebted to either local creditors, foreign sovereign nations or international financial institutions.
“However, borrowing must be project-tied to have the desired multiplier effects. Borrowing to finance consumption is unproductive.
“The N39trillion debt owed by Nigeria is not a major subject if only the debts could be traced to projects that generate returns, stimulate growth and development and capable of paying themselves back.
“We therefore need the details and breakdown of the debts and see if we can trace each one to the use it has been put,” he stated.
