Unsustainable debt servicing

RECENTLY, the Minister of Finance, Budget and National Planning, Mrs Zainab Ahmed, indicated that the Federal Government expended 89 per cent of its revenue on debt servicing between January and November 2020. Mrs Ahmed made this disclosure while speaking at the virtual presentation of the 2021 approved budget in Abuja. According to her, the Muhammadu Buhari-led government expended a total of N3.10 trillion on debt servicing for the period in question out of its N3.48 trillion retained revenue.  As revealed during the presentation, the Federal Government share of oil revenues generated in 2020 was N1.46 trillion, representing 157 per cent performance, over and above the prorated sum in the revised 2020 budget. Non-oil tax revenues stood at N1.14 trillion, which is 77 per cent of the revised target, while Companies Income Tax (CIT) and Value Added Tax (VAT) collections were N591.80 billion and N172.25 billion, representing 79 per cent and 66 per cent, respectively, of the prorated revised targets for the period. Customs collections were put at N379.58 billion, around 80 per cent of revised target. On expenditure, the minister said that by the end of November 2020, N1.22 trillion had been released for capital expenditure, out of which up to N118.37 billion was released for COVID-19 capital expenditure.

The minister may have been quite detailed in her presentation, but there is no cause for cheer. On the contrary, there is much, perhaps too much, to lament and be extremely sober about. If, by implication, N89 was spent on debt servicing out of every N100 made during the period under review, it is apposite to ask whether the country has a government. The country’s debt-to-revenue ratio, a key measure of debt sustainability was 89 per cent for the period under review, whereas the World Bank recommends 22.5 per cent for low-income countries.  Without doubt, this is an emergency situation, yet the government keeps piling up debts and pontificating about the gains therefrom. In September last year, as revealed by a Debt Management Office (DMO) report,  the country’s public debt rose by N2.381 trillion between March and June 2020, to hit N31 trillion. Meanwhile, the country expended close to $288 million on debt servicing within the same period. It’s time for a solemn assembly.

Stung by criticisms of its borrowing strategy, the administration has tried to reassure Nigerians that there is, to quote the Bard of Avon, a method to its madness. Only last week, it approved a medium-term debt strategy which reversed concentration on foreign loans in favour of long-term domestic borrowings from 2020 to 2023. One highlight of the new strategy is the increase in the target debt to GDP ratio of 40 per cent from the 25 per cent stipulated in the Fiscal Sustainability Act, even though the ratio is still well below the World Bank/IMF’s recommended threshold of 55 per cent for countries in Nigeria’s peer group.

Of course, as the finance minister indicated in her presentation, the deficit in the current budget would be financed mainly by borrowings with N2.34 trillion borrowed from domestic and foreign sources each, and N709.69 billion borrowed from multilateral and bilateral loan drawdowns, while privatisation proceeds would provide N205.15 billion. Obviously as a balancing act, the minister said several measures were being instituted to improve government revenue and entrench a regime of prudence with emphasis on achieving value for money. Her words: Government will aim to optimize the operational and collection efficiencies of GOEs, with a view to their generating significantly higher revenues and controlling expenditures more tightly.

Distressingly, the administration keeps talking about shoring up revenue while saying nothing about reducing debts. Yet if you increase the revenue base but keep borrowing, the situation will only worsen. The government has become so desperate for money that it is now going after people’s bank deposits and unclaimed dividends. Sadly, after nearly borrowing the country out of existence, it is still intending to borrow more. This is, to say the least, unconscionable. As we have said time and again, if the Buhari administration intends to rescue the Nigerian people from the appalling conditions in which the majority of them are still trapped, it must make the economy sufficiently productive and cut down on its extravagant spending. It just cannot keep expending resources on recurrent expenditure, leaving very little room for capital expenditure, and supplementing its lavish taste with endless borrowing.

In January 2019, the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) issued a warning regarding the country bloating debt portfolio. The Godwin Emefiele-chaired committee expressed fears for the economy based on the government’s unchecked appetite for external borrowing, warning that the debt level could fast be approaching the pre-2005 Paris Club exit level. The MPC was of course referring to the October 2005 deal brokered by the current Director General of the World Trade Organisation, Dr. Ngozi Okonjo-Iweala, which brought the country an $18 billion reduction on its $30 billion debt to the Paris Club, an informal group of creditor-nations including the United States, the United Kingdom, Japan, and key Western European and Scandinavian countries. That warning, like many others, was ignored, and the country is now firmly back in the debt trap. The administration is steadily widening the path of ruination. It should cease and desist forthwith.


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