Friday, February 3, 2023

Nigeria’s rising debt: The way forward

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By Chinyere Joel-Nwokeoma, NAN

Most governments, multilateral organisations and the private sector across the world usually resort to borrowing to bridge revenue shortfalls and infrastructure financing.

It is, therefore, understandable that the Federal Government borrows to finance budget deficits, specific projects and refinance maturing debt obligations.

However, Nigeria’s growing debt profile has been an object of discourse and concern for stakeholders in recent times.

Indeed, the country’s public debt has been under scrutiny for the rate of growth, debt service to revenue ratio and how it is utilised.

For instance, the total debt stock which stood at N7.50 trillion in 2012 had grown to N42.80 trillion as of June 30, 2022.

This has brought the Debt Management Office, DMO, under the spotlight, with the federal lawmakers recently accusing the agency of unrestrained borrowing.

However, the paucity of funds to implement Nigeria’s budget over the years due to dwindling revenue has remained a major reason for the country’s rising debt.

Data from the DMO as of September 30 showed Nigeria’s total debt stock had risen to N44.06 trillion from N42.80 trillion in June, on the back of borrowings by the federal and state governments.

The figure, according to the DMO, was made up of total domestic and external debts of the Federal Government, all state governments and the Federal Capital Territory.

A breakdown of that figure showed that total domestic debt stock during the period stood at N26.92 trillion, while the total external debt stock stood at N17.15 trillion.

The DMO attributed the increase in the debt stock to “largely new borrowings by the Federal Government to part-finance the deficit in the 2022 Appropriation Act, as well as, new borrowings by sub-nationals.

However, speaking at the Capital Market Correspondents Association of Nigeria, CAMCAN, 2022 workshop recently, the Director-General, DMO, Patience Oniha, stressed the need to operate an efficient tax administration for Nigeria to tackle its debt and revenue challenges.

Speaking on the theme: “Nigeria’s Public Debt – Some Considerations,” Ms Oniha explained that such efficient tax administration must ensure greater compliance with remittances and shun all forms of evasion.

She stated that revenue challenge remained one of the most critical policy issues of the Federal Government, which was threatening the nation’s debt sustainability.

Ms Oniha noted that the outlook of both the local and international markets was already becoming tighter with rising interest rates.

She, therefore, stressed the need for the country to urgently moderate its new borrowing and ensure that public debt was sustainable by increasing its revenue base and rationalising expenditure.

Oniha said although the nation’s total public debt to GDP of 23.06 per cent as as June, was still within Nigeria’s self-imposed limit of 40 per cent and the World Bank/IMF recommended limit of 55 per cent for countries within Nigeria’s peer group and 70 per cent for ECOWAS countries.

However, she argued that debt service to revenue was extremely high, an indication that urgent steps needed to be taken to boost the nation’s revenue and enhance public debt sustainability.

“Nigeria’s public debt stock has grown consistently over the past decades and even faster in recent years. Consequently, debt service has continued to grow.

“Nigeria’s low revenue base compounded by dependence on crude oil resulted in budget deficits over the past decades. Efforts at increasing non-oil revenue are yielding positive results.

“Dependence on borrowing and low revenue base are now threatening debt sustainability. With a low debt to GDP ratio, Nigeria’s debt service to revenue ratio would have been low if revenue was strong,” she said.

According to her, most countries have placed emphasis on taxation as a principal source of funding for the government while the reverse is the case in Nigeria.

Besides taxation as a source of revenue generation, she stated that borrowings must be tied to projects that would generate commensurate revenues to service loans used to finance the projects.

Ms Oniha also recommended that physical assets such as idle or under-utilised property could be redeveloped for commercialisation to generate revenue.

“Urgent actions are required to moderate the level of new borrowings and ensure that the public debt is sustainable through accelerating the growth in revenues, sale of government assets.

“The outlook shows that both the local and international markets are becoming tighter and interest rates are rising, thus priority should be less on borrowing and more on revenues from oil and non-oil sources,” she said.

Corroborating her views, Prof. Uche Uwaleke, president, Association of Capital Market Academics of Nigeria, ACMAN, said the country’s huge debt burden would get worse if government revenues did not grow significantly next year.

Mr Uwaleke urged government to take advantage of the current favourable international crude oil price by decisively tackling oil theft and ramping up production to meet OPEC’s quota of about 1.8 million barrels per day.

“With respect to non-oil revenue, the implementation of the government’s strategic revenue growth initiatives will go a long way in boosting revenue.

“This involves improvement in collection efficiency by revenue collection agencies such as the Federal Inland Revenue Service (FIRS) and the Customs.

“It also includes effectively taxing digital transactions and properly accounting for all proceeds against the backdrop of the recent controversy surrounding the unaccounted proceeds of stamp duty on electronic transfers,” he added.

Mr Uwaleke said the Federal Government should put in place measures using technology to ensure that collections by revenue-generating MDAs were properly monitored and duly remitted to the coffers of the government.

“These agencies should be given realistic targets and those unable to meet them without satisfactory explanation should have their Chief Executive Officers replaced.

“In the long run, more attention should be paid to diversifying revenue sources including privatisation of selected government enterprises and exports of commodities and finished products outside oil and gas,” Mr Uwaleke said.

Ambrose Omordion, the Chief Operating Officer, InvestData Ltd., said the case of Ghana should be a lesson for Nigerian leaders and economic managers.

“There is a saying that wise men learn from the mistakes or failures of others. What is happening to Ghana should be a lesson for Nigeria’s leaders and economic managers.

“Despite the current situation of Ghana, its borrowing reflected on economic expansion and capacity before this ugly state.

“Nigeria’s economy has contracted with huge borrowing instead of expanding with high cost of debt servicing to the detriment of capital projects and enabling business environment to drive the expected economic growth and progress.

“To reverse this trend of borrowing, the government should look inward and start with full and solid public private partnership, selling off abandoned assets, reduce high rate of taxation but widen tax net, drive economic diversification, provide security to attract foreign and local investments,” Mr Omordion said.

He also called on the government at all levels to reduce high cost of governance, restructure governance system with real economic reforms and changes in 2023 and beyond.

Based on the above submissions, the nation’s public debt stock will continue to grow if governments at all levels fail to change the narratives on ways to boost revenue base even as the country prepares for the 2023 general elections.

The major task before whoever emerges president come 2023 should be ways to increase revenue generation to reduce borrowing mainly for budget deficits.

Nigeria cannot continue to do things the same way and expect a different result, a stitch in time saves nine.

NANFeatures

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