Nigeria’s rising debt profile

The oft assurances by key federal government officials, namely, the Minister of Finance, Zainab Ahmed, Minister of Budget and National
Planning, Senator Udoma Udo Udoma, and Vice-President Yemi Osinbajo that Nigeria’s rising debt profile was within manageable limit are quite

The swift explanation on the nation’s debt situation by the federal government is a significant milestone in the art of democratic governance
as enunciated in the change mantra of the President Muhammadu Buhari administration.

The assurances by the relevant government officials became necessary following public criticism and apprehension on the probable deleterious
effect of the nation’s large scale borrowing, which hit N24.39 trillion ($79.437 billion) as at December 31, 2018, on the already fragile economy,
including the much-touted removal of fuel subsidy.

The minister of finance said Nigeria’s borrowing is still low compared to Ghana, Brazil, South Africa, Egypt and Angola. She said at 19 per cent of
Gross Domestic Product (GDP) the country’s debt was still at manageable level. The minister said this at the just concluded Spring Meetings in
Washington DC, United States of America, USA.

She said: “At 19 per cent to GDP our borrowing is still low. What is allowed by our Fiscal Responsibility Act is the maximum of 25 per cent of our GDP
compared to other countries like Ghana, Egypt, South Africa, Angola and Brazil and we are the lowest in terms of borrowing.”
The International Monetary Fund and the World Bank have at various forums warned about Nigeria’s rising debt. The two world financial
institutions said the country’s rising debt was unsustainable as Nigeria continues to spend a large chunk of its annual budget on debt servicing
with low revenue base.

Early this month, the Debt Management Office (DMO) said Nigeria’s total debt as at December 31, 2018 stood at N24.39 trillion ($79.437 billion) which
represents a year-on-year growth of 12.25 per cent.
However, the minister acknowledged and pointed at the challenge of revenue generation by the country. “What we have is revenue problem
and when revenues perform the aggregate rate of 55 per cent, it hinders
the ability to operate in our budget. So it hinders our ability to service all categories of expenditures, including salaries, allowances, capitals as well
as debts.”

She said the ministry would continue to seek new ways of boosting the nation’s revenue. “So what we are doing at the Ministry of Finance is
concentrating and enhancing of our revenue and collection capacities.
On subsidy, she reiterated that the federal government has no intention
of removing fuel subsidy. At the Spring Meeting, the IMF had called on the federal government to remove subsidy on fuel, saying it was the right thing
to do.

Addressing a press conference, IMF boss, Christine Lagarde, said with
the low revenue mobilisation that existed in Nigeria in terms of tax to Gross Domestic Product, it was important for the country to remove fuel subsidy.
She said this would enable Nigeria channel such funds into other critical areas of the economy.
“We are not there yet and we discuss this periodically under the Economic
Management Team, but we have not found a formula that works for Nigeria and you know Nigeria is unique because what works in Ghana may
not work in here. So it is still work in progress and so there is no intention
to remove fuel subsidy at this time,” the minister said.

Briefing journalists after the Federal Executive Council (FEC) meeting at the Presidential Villa, Abuja, last week, the minister of budget and national
planning said the level of debts incurred by Nigeria remained sustainable.
Senator Udoma explained that the federal government was working
tirelessly to improve the country’s revenue sources, including widening the tax base. He said: “The debts are sustainable, every nation borrows. We
are working on increasing our revenues.

On his part, Vice-President Osinbajo said Nigeria’s current debt burden is one of the lowest in terms of ratio to the economy worldwide. The
vice-president made this claim on Monday while speaking at the 50th
convocation of the University of Lagos in Akoka. Speaking on the theme: ‘Nigeria Rising: The Path to Prosperity’, Osinbajo
said inflation in Nigeria had stabilised at 11 per cent over the past six months.
“We restored medium-term planning with the Economic Recovery Growth Plan which served as a useful loadstone in improving macroeconomic
performance, boosting the real sector of the economy and building infrastructure. The decline in growth, which started at the end of 2014, has
been reversed, inflated has stabilised at about 11 per cent over the past six months and our current account was in the surplus around 1.3 per cent of
the Gross Domestic Product last year.

While commending the Buhari administration for its resilience, diligence, frugality and prudence in the management of the nation’s economy, we
hasten to caution against frivolous borrowings. The federal government must ensure that borrowings are targeted at infrastructural development
and other capital expenditures. This much has been lacking in our fiscal responsibility.

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