Concerns as Nigeria swims deeper in debt waters

In the past couple of years, Nigerians from all walks of life have been shouting at the top of their voices over the country’s increasing debt profile. But with the recent approvals given to the Executive to borrow $1.5 billion and €995 million, once more, experts are beginning to wonder whether or not it is not one loan too many; BENJAMIN UMUTEME writes.

Over the years, the issue of borrowing by the federal government has sharply divided opinions among financial experts and ordinary Nigerians.

While many say borrowing in itself is not a bad idea if the proceeds are used judiciously, others are of the view that the rate of borrowing by the Executive has become frightening. According to them, it would be difficult for Nigeria to repay the various loans.

The country’s fiscal authorities continue to point to the fact that the borrowing is still within sustainable limits looking at Nigeria’s debt-to-GDP ratio. However, many have argued that rather than the authorities looking at the debt-to-GDP ratio, they should look at the debt-to-revenue ratio considering that the country’s revenue had over the years been on a steady decline. This is in part due to the volatility of the oil market, Covid-19, and the OPEC+ production cuts which places a cap on the amount of crude that can be produced in a given day.

In the 2022-2024 Medium Term Expenditure Framework (MTEF) and Fiscal Strategy Paper (FSP), presented to the National Assembly Tuesday, the government is expected to fund the 2022 budget deficit through borrowing.

According to the MTEF/FSP document, the N5.26 trillion budget deficit would be financed through borrowing from both foreign and local sources. From a figure of N12.6 trillion in 2015, Nigeria’s debt rose to N17.4 trillion in 2016 before a massive leap to about N21.7 trillion in 2017. Between 2018 and 2019, the figures climbed to N24.4 trillion and N27.1 trillion respectively. And by December 31, 2020, it rested at N32.915 trillion. The implication is that in 66 months, the current administration has incurred an additional N20.8 trillion debt for the country.

A lawmaker’s view

Reacting to the recent approval for borrowing by the National Assembly, the chairman of the Senate Committee on Power, Gabriel Torwua Suswam, expressed serious concerns about the development in an interview in his Abuja residence at the weekend, saying the future implications for the country were grave.

He said: “As it stands, we have about N33 trillion foreign debts because we are borrowing every year to fund the budget. We have a deficit in this year’s budget. Initially, the deficit was about N5 trillion, but with additional borrowing, next year’s budget deficit will be in the neighbourhood of about N8 trillion. So, how do you sustain that?”

“First, we have breached the Fiscal Responsibility Act which provides that 3% should be in the threshold. For last year, it was 4%. The same laws that we made, we breached them. Now, they are saying we should amend the Fiscal Responsibility Act to accommodate any kind of borrowing that we intend to do.

“What the deficit has done is that it has messed up the exchange rate; it has brought in double digit inflation, and the economy has become unmanageable. Both the macro and micro economic activities have completely broken down. So, continuous borrowing is mortgaging the future of our children.”

He added: “Without sounding like an opposition person, I want to say that, for any government to continue to borrow to fund the budget, we are completely heading towards disaster.

“They brought a supplementary budget of N900 billion and the deficit is about N842 billion. I have never seen a budget like that. That is a bad budget, and what that means is that it has added to the stock on the deficit.

“So, for 2022 budget, the deficit will be in the neighbourhood of N8 trillion, which means ab nicio that budget is not implementable. Even to implement this budget, most of the financing aspects are not realisable.

“So, for me, as an assembly that wants to cooperate with the Executive, so that we will not be seen as those that are stopping them from working, we have continued to approve requests from the Executive that requires us to allow them to borrow to finance infrastructure; whether these infrastructure are seen is another thing. But we will continue to approve it whether they are on ground or not.”

Caution

Also, reacting to the latest round of approvals given the Executive to borrow, the Senior Staff Association of Statutory Corporations and Government Owned Companies (SSASGOC) cautioned that rather than borrow, the government should harness its resources as more borrowing is tantamount to mortgaging the future of Nigerians.

Rising debt, dwindling revenue

Analysts have expressed worry that with debt rising, revenues have not risen rather they have been on a decline. With production cuts, crude theft and the lack of investment in the petroleum sector due to obsolete laws regulating the sector, the figures have not elicited opportunism.

A former director-general of the Lagos Chamber of Commerce and Industry (LCCI), Dr. Muda Yusuf, stated this much when he lamented that excessive borrowing by the federal government was worrying especially in the face of dwindling revenues.

According to Yusuf, the borrowing spree was hurting the economy as much as it was escalating the already high rate of inflation in the country.

Between January and May this year, the federal government paid N480 billion interest on the N1.8 trillion facility granted to it through the ways and means window. This, he noted, was at huge cost to the tax payer.

He expressed concern that the government’s excess borrowing has put pressure on the apex bank to exceed the “5 per cent ceiling of actual government revenue for the preceding year,” specified in the CBN Act. He noted further that the fast rate of money supply has adverse effects on the people’s standard of living which has become a source of worry to Nigerians.

“It has inflationary implications; it is not healthy for the economy because inflation erodes the value of people’s income and affects their standard of living. The value of a currency has a lot to do with poverty and welfare. We must be worried about the fast rate of money supply because inflation triggers poverty.

“Inflationary environment elevates production costs with adverse impact on corporate profitability, thereby making it increasingly difficult for businesses and corporates to meet their debt obligations to lending institutions. This translates into a significant increase in credit loss provisions with adverse impact on banks’ profitability.

“We need to caution the government against being too dependent on the CBN for financing deficits because of the high inflationary impact. Inflation is a terrible thing. When people complain about hunger and poverty, it is because the money they have in their hands cannot buy anything much,” he said.

Priorities

Diverse opinions are that instead of ‘borrowing for the sake of borrowing,’ the government should prioritise it. With 86 per cent of revenue going into debt servicing, it has become imperative to heed experts’ admonitions.

For Yusuf, the government should rationalise its spending as a way out of excess borrowing, as borrowing to fund recurrent expenditure is inimical to economic development.

“The government should consider private partnership in funding projects that require huge capital outlay as well as selling idle assets to raise funds for building infrastructure.”