The director-general, Debt Management Office (DMO), Patience Oniha, tells select journalists in this interview that borrowing is not a bad thing contrary to public opinion. According to her, Nigeria’s huge budget deficit is responsible for the increase. BENJAMIN UMUTEME was there.
What is it about ‘Nigeria has a revenue problem and not debt challenge’?
If we increase revenue, debt to GPD will be lower. Whereas, for Nigeria, it is 6.3 per cent and it can’t work. That is why we should be mindful of the effort of the government to increase revenue. You are the least borrowed, but the one with the highest borrowing ratio because you are not generating enough revenue.
What are the risks to Nigeria at the moment?
The environment has been so harsh. In terms of risk, what that does is that we look at our current portfolios and project into the future to see how far the growth in debt has been. We do that in concert with agencies of the government on a yearly basis. What that helps us to do is to give a gap on how far we can go on borrowing. As of 2021, the debt to GDP was about 22%; there are tools that are used in controlling and managing the growth in our debt levels. Let me add that the DSA and World Bank best practices that we have adopted for many years says the deficit in your budget should not be more than 3% of your GDP. What that tells us is that in restructuring your budget, you can’t just put any amount you like.
You know Nigeria has been through two recessions if you look at 2015-2017 and the level of borrowing prices was increasing. So, what happened in those years? Crude oil prices crashed, we also had problems with production due to challenges; so new borrowings have been rising. So, the ERGP provided that the government would borrow to fund infrastructure – that was a tool for economic growth. Another component is that the government will borrow to increase foreign reserves. Those were strategic objectives, but the story I am trying to tell is that when you then go to 2018 and 2019, you will see that new borrowings are increasing. The reason is that we thought we had stabilised and we didn’t need that high level of borrowings again as we were doing again until Covi-19. What we need to do is how to grow revenue in an environment where growth is low and unemployment levels are high. That is the reality! This tells you a story that it wasn’t meant to be continuous.
What has the DMO been doing in managing the country’s debts?
The Sukuk is an instrument. Once you raise it as Sukuk, it can’t be used for any other thing. So, we started at 100, we did another 100, got to 162, and last year, we had 260. It is part of the new borrowing; it’s not extraordinary. That’s why we are extremely happy with the Sukuk. Before you travel from Abuja to Kano, you must see a Sukuk road, whether it’s Ibadan-Lagos, you will see a Sukuk road. There is something around it that benefits each one. Look at the trend, we are getting there. I am aware that in the location of borrowed funds, the minister of finance, budget and national planning devoted money to capital projects, but it’s still a journey. Just look at the budget – I keep giving people that document; it tells you a story. If you don’t put it in the Sukuk, new borrowings can also fund it.
What is the DMO doing in respect of CBN’s ways and means to the federal government?
The ways and means is the government’s overdraft at the CBN. What we are trying to do is to have it restructured into a proper termed loan instead of an overdraft. We haven’t closed out on it yet, it’s still work in progress.
With the federal government continuing with subsidy payments, what happens to the budget?
The federal government is going to have an amended Appropriation Act rather than one Act and supplementary as it were last year. If you ask me, what that does in that amendment is an incremental borrowing of N trillion. I think with what has been happening, with crude oil prices, there may still be work to do. Remember what we said about external borrowing; if it is amended, external borrowing goes up. Using the one submitted by Mr. President to the National Assembly, for instance, it means that figure goes from N5.4 trillion to N6.3 trillion; that means an increase of N1 trillion. So, it’s still the same structure – external or domestic.
We noticed that Nigeria’s Eurobond and yields were oversubscribed in February. What was responsible for that?
As you know, the international capital market is sensitive to news. From the data we have looked at, if you compare Nigeria to countries like Angola, Ghana, we have been more stable than those in terms of yield. In our local market, I know we will bounce back. It has not been too volatile. Markets are what they are; they will not call you to tell that price they should be trading for your Eurobond. They do it based on several factors, liquidity in the market, and government policy. Is the Federal Reserve Bank going to increase rates, is the Bank of England increasing rates? They are not thinking sentiments before they now look at you. Are you still good? You can’t influence that. If anything, you can influence it by becoming a strong country and by getting a better rating.
At what point should Nigeria stop borrowing?
I like it because it’s a collective effort. One way is to get a balanced budget and you won’t borrow. Look at the budget, what can you take out? Because you can take out some expenditure and it will reduce, and you may not need to borrow. The second point he raised, we do a debt sustainability analysis and we advise the government. But let’s not be shy about it, we need to increase revenue. Look at the budget, how do you want the government to reduce personnel costs? Is it the statutory allocation that has to be reduced? I think we have to go back, look at the budget and decide.
Why is Nigeria not going to benefit from oil price rise?
When crude oil prices are rising, you have to be able to produce and sell to benefit from it. We are not meeting OPEC’s quota yet because we have challenges with production. We are not able to grab this wonderful opportunity because it won’t last long. We import the finished product. These people will cost it at the price of crude oil and we buy it in dollars and import it with dollars. There is an issue there; so we shouldn’t be excited.
Is it true that China won’t be lending to Nigeria again?
Officially, we don’t have a communication from China saying we are not lending again. We are still in discussion with them on a continuous basis. But generally, they came to my office to give me a report on their lending plan for Africa. So, they are pretty focused on what they are doing. China has moved up significantly in their lending plans for each country. They are getting sophisticated like the advanced countries. So, if China does not give us money what happens? Remember that I said we are diversifying our sources of funding, whether in the external or domestic. Secondly, debt from China is about $3.6 billion, and it’s about 10% of our external debt compared to total debt, it’s probably about 3%. What I can say is that we like them, we can see the effort, we can see the rail, it’s not the major source of our funding; keep that in mind.
Which is beneficial to Nigeria, domestic and external?
For instance, look at the N5.4 trillion for last year, could we have raised all that from the domestic market? Do they have the capacity? And if we do, we’ll be accused, rightly so, of crowding out corporations. Domestic interest rates are higher. Si, first of all, all you look at is the capacity of the market, you look at crowding out. When we go external, we achieve two things. One of the advantages is that we could raise a 30-year bond but now, in the domestic market, we’ve had 30-year bonds since 2019-long tenured bonds. But don’t forget what I said, with external borrowing it hits your external reserves, then it enables Nigerian entities. The government is a facilitator, going to the Eurobond market based on the benchmark we put in part.
Why doesn’t the DMO do more Sukuk?
The DMO is very excited about the Sukuk. The first one was tough, the second was tough, after that, Nigerians now believe in it and we are seeing more retail participation, provided there are projects in the budget that we can match.
There have been several debates around revenue and infrastructure; where is the DMO standing?
On revenue versus infrastructure, is there anybody who doesn’t want infrastructure now? Can we slow down? It’s a difficult choice and it has current and future benefits. I have a simple way of putting it. Some of the things that were based on loans that were taken a long time ago are you not enjoying them? The future generation enjoys those roads, those airports, those rail lines, if it is their time that the debt is being serviced. We have 30, 35 years loans that we took a while ago, this future generation unborn will still benefit from these capital projects. Will the Sukuk roads go away? What I am saying essentially is that infrastructure benefits the future generations as well. Some Nigerian top universities were built by funds borrowed by the regional governments. It just looks as if we are putting a burden on them, they will benefit as well.
