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Private sector debt service may hit $19bn by 2023 ending —WAIFEM

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2 years ago

Private sector debt service may hit $19 billion at the end of 2023 and there may be limited foreign reserves to service Nigerian debts.

According to data from the Central Bank of Nigeria (CBN), Nigeria’s external reserves fell by $1.46 billion between January and March, even as it ended February 27, 2023 at $36.67 billion.

Dr Baba Yusuf Musa, Director-General, West African Institute for Financial and Economic Management (WAIFEM), made the revelation in a speech delivered at the just concluded World Bank/ IMF meeting in Marrakech Morocco.

According to him, this combined with public finances of governments, businesses and individual citizens of most countries around the world have worsened fiscal risks.

These entities, he said, have had and are still feeling fiscal risks arising from the devastating impacts and economic upheaval caused by crises that could not have been forecast a few years ago.

These crises ranged from the COVID-19 global pandemic, recessions, financial crises, climate change, or natural disasters to inflation and energy crises stemming from the Russian/Ukraine war and the altered global interest rate landscape that is making lending to Low-Income Countries (LICs) and debt servicing prohibitively expensive.

Various governments had to take steps to shield their citizens and economies from the worst effects of these challenges, taking place against a backdrop of high debt levels, limited fiscal spaces and elevated uncertainty that has made it difficult to predict what events may develop in the nearest future, so that policymakers can structure public finances with resilience in mind.

The shocks, he said, that have shaken the global economy in recent years have introduced a new normal for turbulence, lifting uncertainty to exceptionally high levels, which in turn hurts economic growth and causes fiscal risks.

Describing Fiscal risks as risks that may arise from a range of different sources, which can be classified as Societal, Geopolitical, Environment, Economic and Technological, he added that Fiscal risks are deviations from fiscal outcomes expected at the time of budget formulation or other forecasts.

“The Presentation focused on Fiscal Risks and Vulnerability relating to the Nigerian Economy. This deviation might create a significant impact on government finances and impair the capacity of governments to use fiscal policy to stabilize economic activity and support long-term growth.

“Thus, Fiscal Risk Management refers to the comprehensive analysis, disclosure, and management of fiscal risks. Fiscal risks are factors that may cause fiscal outcomes to deviate from expectations or forecasts. That is all those factors that can cause government finances to deviate from what is expected,” Musa stated.

He said while ongoing shocks unfold, Nigeria stands at a crossroad and as the country enters a low-growth, low-investment and low-cooperation era, it needs to reduce expenditure, establish clear accountability for monitoring, managing, and reporting contingent liabilities.

The government, he advised, should address the large and widespread horizontal and vertical inequities, stop the widespread use of tax incentives, and criminalise and prosecute those involved in tax evasion.

“In addition, the government should strengthen the Nigeria Customs and other tax administration rather than using consultants to collect tax, ensure a monitoring mechanism for regular review of the potential for risk realisation as new information becomes available; whether existing policies remain appropriate and whether existing mitigation measures are adequate.

The government should also establish intra-governmental coordination mechanisms to assess and monitor risks and policy responses, particularly between finance and economic ministries and central banks to monitor and manage financial sector exposures,” the WAIFEM DG submitted.

He further stated that that Parliamentary involvement in monitoring the guarantees given and called as well as the impact on the economy and employment of support measures will help provide additional legitimacy; ensure the full disclosure of all fiscal measures, be they direct or contingent, on-budget or off-budget.

“Fiscal authorities in Nigeria should first and foremost intensify efforts to build up their capacity to identify and assess risk factors and their budget’s exposure to them.

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