Experts raise concerns over FG’s plan to fund deficit from privatization
Zainab Ahmed, Nigeria's Finance Minister

BY EMEKA EJERE

Plan by the federal government to add N6.3tn new debts to Nigeria’s current debt stock, with little or no possibility of improvement in revenue is raising concerns of possible debt distress among economic experts.

The experts are kicking against the federal governments proclivity for debt, which they have described as unsustainable, calling for increased productivity with a view to boosting revenue.

Last week, the Debt Management Office (DMO) revealed that the federal government has incurred N950bn new domestic borrowing between January 2022 and March 11, 2022.

Disclosing the fresh borrowing in the presentation of the Public Debt Data as of December 31, 2021, the Director-General of the DMO, Mrs. Patience Oniha, revealed that the federal government was considering all options to raise funds externally.

According to the document, the federal government still plans to borrow an additional N1.6tn, while the 2022 debt target for domestic borrowing is N2.57tn. There is also a plan to borrow N2.57tn from foreign creditors, while N1.16tn is expected from multilateral/bilateral drawdowns.

In total, the federal government plans to add N6.3tn new debts to the current debt stock, which would push the country’s total debt stock to N45.86tn by December 2022.

Data from the DMO showed a rise in Nigerias total public debt from N32.92 trillion in 2020 to N39.56 trillion at the close of last year.
A breakdown of the debt statistics as at December 31, 2020, showed that Nigeria owes International Development Association (IDA) $11.12 billion; Eurobonds ($10. 8 billion); IMF ($3.53 billion) and Exim Bank of China ($3.26 billion), among others.

The debt stock includes new borrowings by the federal government and sub-nationals. The borrowed funds are helping in financing the budget deficit, capital projects and support economic recovery, according to authorities.
Although Nigeria’s current debt to Gross Domestic Product (GDP) 22.47 per cent is relatively low, giving it room to borrow, its inability to generate adequate revenue has worsened its debt problem.

The debt to GDP ratio stood at 22.47 per cent compared to 21.61 per cent in 2020. At this level, the ratio is within Nigerias self-imposed limit of 40 per cent, the World Bank/IMFs recommended limit of 55 per cent for countries within Nigeria’s peer group, and 70 per cent for ECOWAS countries.

Nigeria’s revenue to GDP ratio has remained low at nine per cent compared to countries, such as Ghana at 12.5 per cent; Kenya at 16.6 per cent; Angola at 20.9 per cent; and South Africa at 25.2 per cent.

All options for raising funds externally are being considered. These include funding from multi later so and bilateral sources, the International Capital Markets and the $3.35bn Special Drawing Rights allocated by the International Monetary Fund to the Central Bank of Nigeria, Oniha had said in her presentation.

Incidentally, IMF has expressed readiness to continue to grant credit facilities to Nigeria and other emerging economies within its membership, to economies protect them from losing their financial security or derailing from long-term financial goals.

Speaking during an online media parley in Washington DC, United States on Thursday, the IMF said the facilities would come through its financial safety nets. It reiterated the importance of strengthening global financial safety net, and ensuring that countries have access to support.

In the media parley transcript posted on its website, IMF called for actions to strengthen policy frameworks and reduce vulnerabilities in monetary policy, fiscal policy, and financial support for business.

“We emphasise the importance of the global financial safety net, and countries having access to that as appropriate, including, of course, support from the IMF, which we stand ready to provide as needed by our membership,” it said.

Reacting to the situation, an economist Dr. Muda Yusuf, said the country is on the brink of debt distress.

He said, “Nigeria is on the brink of debt distress because our debt profile now is not sustainable. We had a debt service to revenue ratio getting to 76 per cent as of November last year. The situation is likely to get worse because our deficit in the 2022 budget is N6.4tn, and we need to borrow to finance the deficit.

“Also, the federal government has submitted a supplementary budget proposal for subsidy for N2.55tn after the budget was passed. Adding that to the deficit, we will get about N9tn.
How much is the revenue? It is just about N10.7tn, and we are not likely to get the full revenue, maybe 70 per cent. So, we are getting to a point whereby the time we service our debts, which should be around N4tn, and spend another N4tn on subsidy this year, we have consumed almost all our revenue for the year.
“Does that now mean that we are going to be using debt for personnel costs?; for overhead?; for capital budget? That is where we are heading to.”

Yusuf, who is the Chief Executive Officer of the Centre for the Promotion of Private Enterprise (CPPE), regretted that instead of the country gaining from the increase in oil price like other oil-producing countries, the government is losing money on fuel importation and fuel subsidy.

“With the increase in oil price, the subsidy price will have to increase beyond what the NNPC requested. While other oil-producing companies are happy, as their reserves are increasing and currency are getting stronger, we are lamenting because we are not getting the full benefit of the oil windfall,” Yusuf said.

On his part, a professor of Economics, Sheriffdeen Tella, criticised the federal government for the rate of increasing debt, pointing out that the money spent on debt servicing is eating deep into the governments revenue, which makes borrowing an unsustainable form of financing.

He said, “We are already in debt distress if we are spending a large proportion of our revenue on debt servicing, we are in trouble and our revenue is not growing. The Minister of Finance recently said we will borrow from Eurobonds to finance subsidy.

“What kind of economics is that? The Minister of Finance deserves to be given an award for patronising the debt market. She has made Nigeria the most active debtor in the world. This is not good enough.

“We are already in distress in terms of debts because we are spending our revenue, which is declining, on debt servicing and fuel importation. It is unfortunate.

“What is the money borrowed used for? Every time, we hear of things being underfunded. Even the NNPC said they are underfunded which is why they were unable to meet up with the OPEC quota for oil production. So, what really is funded in this country?” he wondered.

He further urged the federal government to stop borrowing and focus on how to boost revenue, especially by removing the fuel subsidy.

“The federal government needs to be stopped from borrowing money. They just borrow for consumption and not production. How can you borrow for subsidy on fuel when people are using more diesel?” Tella queried.

“Industries, trains, and trailers use diesel. Diesel is not enjoying subsidy. So, what subsidy are they paying on petrol, which is for domestic use and not industrial use? Industries even have to use diesel steadily due to poor electric power supply. We need to get our priority right.”

The IMF had in its 2021 Article IV, which was released in February, said the federal government could spend as much as 92.6 per cent of its revenue on debt servicing this year.

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