Fear may well be the word to describe the state of Nigeria’s debt profile, hovering at N11.24 trillion as at December 31, 2014 and still rising.
The level which the nation’s debt overhang has attained is like a death-knell. Yet it keeps climbing.
The revelation by the Minister of Finance and Coordinating Minister for the Economy, Dr. Ngozi Okonjo-Nweala, that the Federal Government has borrowed N473 billion in the first quarter of this year to execute the 2015 National Budget, is another clear case of one-more borrowing too many, so to speak.
Dr. Okonjo-Iweala said yesterday that of the N882 billon budgetary provision for borrowing, the Federal Government had already accessed N473 billion to fund Recurrent Expenditure, such as salaries and other overheads. The obvious reason for this development, she stressed, is the 50 per cent decline in the spot market of crude prices .which has inadvertently resulted in a cash crunch for the country.
To remain focused on keeping the economy stable and the government running, the government has embarked on “front-loaded borrowing programme to manage the cash crunch in the economy,” she said.
Nigeria’s borrowing profile from independence, is a study in itself. Going by the data available to The Nation, there appears to be more questions than answers when it comes to x-raying how the nation arrived at this point in time, where nothing gets done unless it is powered by external revenue sources, rather than internally generated funds, or revenues earned from known government sources, such as taxes, oil and non-oil exports.
The hint that Nigeria would go a borrowing again, was given by Mrs. Okonjo-Iweala in far- away America in April during the last International Monetary Fund (IMF)/World Bank Group Spring meetings in Washington DC, United States (U.S.).
On prospects of further borrowing, she said: “Government is considering and in fact taking steps to actualise this with the World Bank Group and the African Development Bank (AfDB).” The other option of tapping the capital markets would be left for the incoming government. She said the government decided to look outside the nation’s shores for the next round of borrowing because it has reached, and almost exceeded taking the ceiling for local debts.
Mrs. Okonjo-Iweala said: “Our borrowing strategy is very prudent, and what we will do is that we have a lot of domestic borrowing than we want, so we are trying to switch and have a little more of external borrowing, but by drawing heavily on the multilateral institutions. So we will be going to the World Bank and the AfDB, and we will also look into the markets. But for the multilaterals, we’ve already embarked on discussions.”
Her disclosure that N473 billion has been borrowed is a confirmation that the proposal has eventually been actualised.
In its 2014 Debt Sustainability Analysis (DSA), the nation also adopted a subsisting debt management strategy as captured in the approved Nigeria’s Medium-Term Debt Management Strategy (MTDS), for 2012-2015, which seeks to achieve an optimal mix in the debt portfolio of 60:40 for domestic and external debts respectively as against the current mix of 83:17 through a gradual substitution of relatively more expensive domestic borrowing with cheaper external financing. Thus, the 2014 DSA has already incorporated government’s policy objective of reducing the overall cost of government borrowing at an acceptable level of risks. This may have informed the minister’s statement of government’s preference for approaching multilateral agencies.
The objective of the 2014 DSA is to assess the country’s capacity to finance its projects/programmes and service its debt obligations, without undue large adjustments that may compromise its macroeconomic stability, overall growth and development.
The government’s avowed confidence that it can continue to borrow on the argument that it falls within a safe threshold, is punctured when examined under an uncertain economic regime, as being faced by Nigeria. Even the government admitted this by its own record. It underlined the risks inherent on its path.
“The pessimistic scenario ( where Nigeria is presently), assumes a reduction in the growth of the Gross Domestic Product (GDP), increase in the rate of inflation, decline in revenue accruing to the Federal Government as a result of a fall in crude oil prices, deterioration in fiscal deficit and current balance, amongst others. Unlike in the previous years, which made pessimistic scenario revenue-specific, this years DSA considered deterioration in a broad range of macroeconomic indicators and variables that could impact negatively on the debt portfolio,” the sustainability analysis annual report said.
Although the results indicate that the country will still remain at a low risk of debt distress under the pessimistic scenario, it also shows a rising trend for all the debt indicators throughout the projection period. This means that a prolonged deterioration in one or two of the variables could increase the risk of debt sustainability.
The growing concern over the country’s debt overhang has been on the front burner for years, but often times, government officials have always argued that the nation’s debt level has not gone out of a safe trajectory. However, the lid over this confidence margin, appears to be weakening and increasingly contested.
A lecturer at the Pan Atlantic University, Lagos, Dr. Austin Nweze, pointed out a grave danger in accumulating excessive foreign debts as such would place undue burden on future generations, especially if the loans are not channeled into capital projects.
He said that the danger lies ahead for the economy, should the existing level of borrowing from big nations continue, which could make the country to depend on lending nations.
Nweze, however, said that there is nothing wrong in borrowing provided the funds are well utilised or invested in the provision of infrastructure.
According to him, the fall in oil prices has reduced revenue receipts, forcing the government to look for money to run the economy.
He urged the government not to leave behind a heavy foreign debt burden for the present and unborn generations. He cautioned that Nigeria, already under a heavy burden of foreign debts could be in great danger.
He urged the ruling class and the older generations to set good example and educate the coming generations for a better and secured future. According to him, such example should be set by not accumulating debt for future generations to inherit.
He urged the government to invest borrowed money in projects that will benefit the economy, instead of consuming the money.
Dr. Isaac Nwaogwugwu, a lecturer at Department of Economics, University of Lagos, said there is no way we are going to finance capital budget without borrowing.
He said: “That is why the allocation to capital account or expenditure is very small unless the government says it not ready to invest or provide for the future then it’s going to borrow.
“If government is committed to developmental issues there is no way it can run away from that? So, the volume of borrowed amount, or our debt stock wouldn’t matter so much. They can always try to cut down what they have borrowing and not that they can’t borrow.”
Leakages
Nwaogwugwu went on: “The danger on borrowing lies on fiscal leakages. If government can block leakages, that will be fine and that is the task for the new government, though the president-elect will find his hands tight on many issues.
“We can’t run away from borrowing but all we have to do is to ensure that we block all leakages. All we have to do is that we become bold enough to address some fiscal issues involved in recurrent spending. Many things we spend on recurrent expenditures are simply used to maintain some people who run government.
Funds not tied to specific projects
“That issue started under former President Olusegun Obasanjo. If you look at the letter which Soludo (the former Central Bank of Nigeria Governor) wrote when he was talking about the Jonathan administration and how he mismanaged the economy, he raised the issue of using the budget to finance consumption expenditure.
“Basically, Soludo called the budget under President Jonathan a consumption appropraition. In as much as I agree with Soludo totally, I also hold him accountable for some of the mistakes. It was when Obasanjo was in the office that Soludo was the CBN Governor, before Sanusi Lamido, took over with this minister of state for finance, who replaced Okonjo-Iweala . “It was after that we borrowed money, they called it capital receipt and we used that money to pay salaries and wages; we used that money for recurrent expenditure. We borrowed money and we don’t tie it to capital projects. That is one of the biggest issue and where the dangers lie. Such loans must be tied to the budget and if we don’t, we’ll be mortgaging the future of Nigerians.
The way out
Nwaogwugwu said: “We have to be fiscally discipline. We saw the Senate pass the bill; we saw the House of Representatives pass the bill and what did we see? The budget has increased. It has gone up to N4.5 trillion. But, what we discovered that National Assembly increased spending and mark up expenditure on things that might not be necessary. That has always been the problem. If the National Assembly can look at the budget critically and say, ‘we don’t need this; we don’t need that; let us start with their own remuneration; begin to cut them down, look at how much they are collecting’.
“Look at the severance allowances… unless you cut these down, there is no way out. You look at the state bureaucrat today; the havoc they have caused to the economy is huge. Look at the monetisation policy of Obasanjo, they have abandoned it completely. Unless we have a National Assembly that is bold enough to say, ‘lets block this and that’, then we will move forward. The way out is that those we have elected should block all leakages. If the politicians do the right thing we won’t have any problem.
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