Experts warn FG as debt profile hits N41.6tr to Stop borrowing

As the federal government recommends additional borrowing for the 2023 year budget, economists have been harsh with the government. They unanimously urged the government to halt borrowing, just as yesterday's confirmation by Mrs. Patience Oniha, Director-General of the Debt Management Office (DMO), that Nigeria's debt load as of March 2022 was N41.60 trillion.

The Nigerian National Petroleum Company (NNPC) Limited was criticized by the Nigerian Customs Service (NCS) for claiming that billions of naira were spent on petroleum subsidies annually.

In her appearance yesterday at the House of Representatives Committee on Finance's ongoing engagement on the 2023–2025 Medium Term Expenditure Framework (MTEF) and Fiscal Strategy Paper (FSP), Oniha blamed Nigeria's high debt profile on a lack of revenues and the National Assembly's approval of the annual budget with a deficit, which increased the country's debt stock.

She expressed sadness that the nation has been operating on a deficit budget with increased borrowing for many years, particularly since the COVID-19 pandemic epidemic, and emphasized that the only solution is higher revenue production.

Oniha blamed Nigeria's high debt profile on a lack of revenues and the National Assembly's approval of the annual budget with a deficit, which increased the country's debt stock, in her appearance yesterday at the ongoing engagement on the 2023–2025 Medium Term Expenditure Framework (MTEF) and Fiscal Strategy Paper (FSP) by the House of Representatives Committee on Finance.

She lamented the fact that the country has been running a deficit budget and borrowing more money for many years, especially since the COVID-19 pandemic epidemic, and emphasized that the only way out is to improve revenue generation.

"Borrowing would not halt until the concerns of staff, overhead, and capital spending are appropriately addressed in the budget."

Remember that the 2023-2025 MTEF/FSP was presented to lawmakers on Tuesday by Zainab Ahmed, Minister of Cover, Budget, and National Planning. In it, she revealed that the Federal Government will borrow nearly N11 trillion and sell national assets to finance the 2023 budget deficit.

The combined deficit for the year (fiscal and project-related loans) was N7.35 trillion. In the best-case scenario, the amount is anticipated to increase by 53.7% to N11.3 trillion the following year. When subsidies are removed, the amount will reach N12.4 trillion.

Oniha continued, "A World Bank report showed that Nigeria has a low debt to GDP ratio but a very high debt service to revenue ratio. As a result, these other countries' tax-to-GDP ratios are greater than Nigeria's.

"Nigeria ranked 195 out of around 197 countries in the World Bank study report, which means we outperformed Yemen and Afghanistan. We don't want to resemble those areas, in my opinion.

"Rather than looking at the deficit to fund our activities, you must carefully examine the revenues. How much revenue is there when we talk about an N11 trillion deficit and borrowing for 2023? One is that. The extent of the borrowing was 62% of the budget when we look at the first tranche, which was N10 trillion for the entire year of subsidies and N9 trillion for subsidies the following year. That's a lot. I believe that both parties are responsible. Check the various expense lines to see what we are capable of. Therefore, if the deficit is smaller, borrowing will also be smaller, which is how to increase at a slower rate.

In addition, to the detriment of the general populace, the Controller General (CG) of Customs, Hameed Ali, accused NNPC of producing fraudulent data in the name of subsidy payments.

Ali, who also testified before the committee, disputed the NNPC's estimate of the nation's daily petroleum consumption, claiming that it should not be greater than 62 million based on the results of the service.

The CG claims that NNPC never accounts for the daily consumption imbalance of 36 million liters, although it is nevertheless subsidized.

"Not everyone is able to fill their tank up every day. Over 500 tankers are needed to transport the 36 million liter shortfall. He asked, "Where do they load it and carry it that we do not know?

The session was presided over by Saidu Abdullahi, the committee's deputy chairman, who said: "The country is in an excellent position to maintain borrowing. There will always be a need to borrow. No matter how much money we make, the nation must borrow. The sustainability of the debt we are taking on is what we should be concerned about, and based on what she has said, the nation is doing well in terms of managing its debt.

Dr. Ayo Teriba, CEO of Economics Associates, commented on the debt crisis and said it would be very challenging to balance the budget given the current economic situation.

We spent N4.7 trillion between January and April but only brought in N1.6 trillion. More than N3 trillion was spent on the deficit. Only N1.6 trillion would be spent if you wanted to keep spending under what was brought in. Additionally, the interest payment, which was N1.94 trillion, would not be covered. Therefore, creating a cash budget is not in the cards, Teriba stated.

The economist believes that using debt financing is a question of policy choice rather than necessity, even though he forbids cash back zero budgeting, as it were. He bemoaned the fact that the administration has disregarded calls for it to generate revenue from idle national assets during the previous seven years.

The current administration's rigid stance on debt funding has run into a brick block nine months before the conclusion of its second term.

Teriba asserted that after more than seven years of steadfastly sticking with a less sustainable funding alternative, it is difficult to expect the administration to change course nine months before the end of its term.

"I believe we would have to accept it as the administration's legacy; it was an administration that essentially handed on a 100% deficit. The following regime would need to find the funds to pay off the debts racked up by the previous one, he said..

In response to the question of whether shifting the burden to the incoming administration will cause a catastrophe, the economist emphasized that "Nigeria is not in any crisis but has options" that the present administration is failing to consider. He claimed that the asset lease option is a win-win strategy that Saudi Arabia, India, and Brazil have used to provide predictable and sustainable cash flow and spur growth.

"In order to bring in money for the government, bring in foreign investors to idle assets. We have underutilized infrastructure, idle assets, and enterprises whose market value is unknown, Teriba said.

While some economists have claimed that the government has failed in its management of the economy, Bismarck Rewane, a member of the recently largely disbanded Presidential Economic Advisory Council (PEAC), told The Guardian that the current administration has taken some actions whose effects are only now beginning to become apparent.

"We need to boost revenue, that's what. The biggest problem is the debt-to-revenue ratio. We can avoid any catastrophe if we boost sales and growth.

"They are raising awareness of it. They're attempting to be effective. To increase revenue is one thing, and to stop leaks is quite another. If you stop leaks, your influence increases. He acknowledged that the administration has taken some initiatives, but said that there is a delay between when we take action and when we see the results.

 

However, Godwin Owoh, a professor of applied economics, a consultant for the World Bank, and a specialist in debt management has the opposite opinion. He warned that the administration is dangerously traveling at top speed while the tires are flat by using the comparison of a car and a flat tire. He insisted that it was time to evaluate the framework and implement the shift away from the culture of borrowing.

 

This government should have taken the approach that is typically taken when a state and market have failed. Driving a vehicle at 120 km/h while it has a flat tire is not possible. In addition to the market failing, the state has also failed, he claimed.

 

Owoh recalls a day when 12 of the 18 experts moderating a session in Rwanda were from Nigeria. He claimed that an Indian participant in the session questioned what the Nigerian specialists were doing while the country's economy was being mismanaged and warned that exclusive policies would ultimately kill the economy.

The members of their system who wear the toga of professionals have long lost professionalism. If not, nobody would be discussing the budget deficit or outlining potential outcomes... Due to incorrect MTEF/FSP implementation, that deficit is unwarranted, he said.

The economist expressed disapproval of taking on debts that will not improve the Federal Government's future cash flow and argued that it would be irresponsible to consider borrowing money the following year to finance a budget that would not include provisions for capital projects.

Meanwhile, the Human Rights Writers Association of Nigeria (HURIWA), a civil rights advocacy group, criticized President Muhammadu Buhari's administration on Thursday for failing to plan for treasury-funded capital projects for 2023, despite the enormous debts that the All Progressives Congress (APC) incurred to pay for spending in the upcoming budget.

Comrade Emmanuel Onwubiko, the national coordinator of HURIWA, stated in a statement that the government must not raise the cost of governance at the expense of the social well-being and security of the people since doing so must have a beneficial effect on people's lives.

It is puzzling that President Buhari's administration has continued its borrowing binge since 2015, he noted. It is even more amazing that the country can go a whole year without any major capital projects, despite the fact that the government continues to run up recurrent costs and raise the cost of running the country, which harms residents' social security and wellness.

"The government's projected budget for 2023 is unacceptable. We demand changes to reflect the will of the people, particularly to strengthen the fight against insecurity, lower governance costs, boost social welfare for the underprivileged, combat systemic corruption at its height within government circles at all levels, and rebuild the badly damaged strategic sectors of roads, schools, and other infrastructure.