FG cautioned over rising debt profile

Stories by Amaka Ifeakandu Lagos

Th e Federal government frequent borrowing has become a source of worry to many Nigerians who have sounded a note of caution that the country may be heading for another debt trap if the borrowed money was not channelled to the development of infrastructure in the country. Available data from the Debt Management Offi ce (DMO) showed that Nigeria’s domestic and external debt profi le as at March this year stood at N19.159 trillion or $62.159 billion.

Th ey also exercise fear that with the government planning to raise N2.34 trillion internally and externally to fi nance 2017 budget defi cit, Nigeria’s total debt burden will be hitting N19.39 trillion by the end of this year. Some analysts who commented on the issue said that Nigeria is digging it’s grave if the borrowed money are diverted for political issues or paying of workers salaries. An economist, Mr Kingsley Onyema said there are three ways to fi nance budget defi cit – through taxes, borrowing and monetization while the most popular model is borrowing.

He said that government source for funds for either political, economic or social issues, stressing that in Nigeria political consideration outweigh economic issues in most government decisions. Onyema said that borrowing for onward investment in infrastructure development would help to revive an economy. He said that the major challenge was that instead of government channelling the additional fund raised from defi cit fi nancing into production investment to increase capital formulation it would be converted for individual use thereby under mining the objective of the defi cit fi nancing.

Managing Director APT Securities and Funds Limited, Malam Garba Kurfi said as at today, the Nigerian debt profi le stood at a N19.159 trillion and it keep up growing. He said by the time 2017 budget fully implemented it would increase as government expected to borrow N2.32 trillion to fund budget defi cit. He said that as at the end of June 30th our crude oilproduction was about 1.8 million barrels per day compared with 2.2 million barrels budgeted and the short fall of the production will mean additional borrowing to meet up with the target revenue base.

Explaining further, he said the implication of this is that much of the revenue generated by FGN will end up injected to services the debt, adding that as at 31st May,2017 44 per cent of the revenue generated are for debt services. Th e remaining revenue are left for other development and if care is not taken we may end up servicing the debt with most of the revenue generated except if we devise a means of increasing our internal revenue. ”

He said that year to date Central Bank Nigeria traded N3.1trillion on Treasury bill or TB with an annual yield of over 20 per cent which attracted most of the banks funds rather than the production sector of the economy making more companies closed with a lot of people loosing their jobs which delay our economy recovery.

He, however, said that the more the FGN borrows money there would be less funds left to boost productivity, adding that this has made many quoted companies to resolve to come through Right Issues to improve their working capital and expand line of production because of the expensiveness of available funds from the bank. He explained that some telecommunications companies have closed down because they cannot aff ord the high interest rate charged by Banks. Kurfi stated that other channels the FGN of Nigeria can improve its sources of the revenue is by improving Taxes collection, noting that our tax revenue compare to GDP stood at about 6 per cent which is very law compared to South Africa which is more than 20 per cent while most of the developed economy is more than 30 per cent.

According to him “we need to diversify our economy especially in agriculture where we are bless with many opportunities if we can develop most of our agricultural products with value added not merely exporting the raw material our economy will be revived. Speaking further he said the implication of borrowing depends on what we use the funds for, If the borrowed funds is use in production sectors and capital expenditures that could pay back itself, there is no problem but if is use for recurrence expenditures or mere consumption it is a problem for now and future. At the present it will make us to keep demanding for foreign goods instead of depending of ourself, providing jobs for the foreigners at our expenses.

In the future it will denies the future generations ability to borrow but left in debt trait that will be diffi cult to get out of it.” In his own contribution, Chief Consultants B. Adedipe Associates Limited, Dr ‘Biodun Adedipe supported Federal Government’s plans to refl ate the economy through borrowing. He said such borrowed funds should not be used to fund recurrent expenditure, but should be used to fund infrastructure and other projects that can generate enough resources to repay the loans. “When an economy is seeking to get out of recession, the typical response is for the government to embark on massive spending, which is referred to as fi scal stimulus.

Often times, the government may lack the volume required and will therefore, have to borrow beyond the normal range for an economy that is either in boom or the recovery mode”. “No professional economist will argue against borrowing to stimulate a recessed economy. But the question will always be to spend on what? If the answer is for infrastructure, my take is to go ahead and borrow as much as you can, but if it is to fi nance recurrent expenditure the economy will be in trouble,” he advised. Adedipe said that maintaining the MPR at 14 per cent on the argument of infl ation risk, stabilizing the exchange value of the naira and bond prices are more counterproductive to domestic productive activities than investment in fi nancial instruments.

According to him “It only extenuates government’s cost of borrowing and makes government’s debt instruments very attractive to astute investors. Th is long spell of fi xed MPR is also gradually making the rate to lose its strategic relevance as a signal rate.” Meanwhile, Monetary Policy Committee at the last meeting expressed concern over the increasing fi scal defi cit estimated at N2.51 trillion in the fi rst half of 2017 and the crowding out eff ect of high government borrowing. While urging fi scal restraint to check the growing defi cit, the Committee welcomed the proposal by government to issue sovereignbacked promissory notes of about N3.4 trillion for the settlement of accumulated local debt and contractors arrears. Th e Committee, however, advised the Management of the Bank to monitor the release process of the promissory notes to avoid an excessive injection of liquidity into the system hereby off setting the gains so far achieved in infl ation and exchange rate stability

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