12 July 2017

Nigeria: N19 Trillion Debt - We Can No Longer Borrow - Govt

Photo: The Guardian
Nigeria economy.

With a debt profile of N19 trillion, the federal government hinted yesterday that Nigeria cannot afford to borrow anymore.

The Minister of Finance, Kemi Adeosun, who disclosed this at the quarterly Presidential Business Forum held at the presidential villa noted that the country's budget is significantly lower when attached to the GDP, which is currently at 6 per cent.

She pointed out that the GDP is lower than those of all Nigeria's peers and that it is the lowest in Sub Saharan Africa and one of the lowest in the world.

The minister lamented that Nigeria's budget size is too small, which means government can only pay salaries in some cases, even as it does not have money to deliver essential services.

Nigeria's total debt presently stands at N19.159 trillion as at March 31, 2017 and the Minister of Finance yesterday also stated that the country can no longer borrow.

Noting that there simply isn't enough money in government to do what government wants to do, the minister contended that even if the federal government plugs all the stealing and all the waste, the budget size will not be big enough.

She added that because people are not paying enough in terms of tax, the government is not collecting enough in terms of tax.

She noted that statistics peg Nigeria's tax to GDP at 6 per cent, Sub Saharan Africa average 17%, Asia 26%, while most of the emerging market and the advanced countries are at 30-35 per cent.

She said, "Our budget size is too small and what does that mean? It means we can pretty much pay salaries but we cannot deliver essential services. We don't have enough money on government to do what we should do.

"I know you all will say that is because people are stealing money, wasting money. I'm saying even if you plug all the stealing and all the waste our budget size is not big enough and that is because we are not paying enough tax or we are not collecting enough in terms of tax.

"It is interesting if you look at the statistics; there is no poor country that has a high tax to GDP ratio and there is no rich country with a lower one and so, if we want to move with the prosperous countries, we have to do what they do.

"We will not achieve prosperity for Nigeria if we continue on the tax to GDP ratio that is in the peer group of Afghanistan. I'm sure none of us aspire for Nigeria to become like Afghanistan. We are trying to benchmark ourselves against more develop countries and we must have to address these problems in a more fundamental sense".

Blaming the problem on over dependence on oil, Adeosun said oil is just one of the country's resources, which is only 10 per cent of the GDP, adding that the rest of the country's economy, which is 90 per cent must contribute to our revenue.

She continued: "So, what are we trying to do? We need to mobilize additional revenue to fund our budget. We have got to get our budget bigger and to do that, we cannot borrow anymore. We simply have to generate more revenue, we have to plug the leakages, we have to improve tax collection so that we can manage our borrowing".

She further explained that the Voluntary Assets and Income Declaration Scheme (VAIDS) is aimed at improving revenue collection rate and generally improving domestic revenue mobilization so that the government can fund the budget sustaineably.

The minister continued: "The response we have had from Nigerians since the launch of VAIDS have been encouraging. I think as a nation we have realized we cannot continue in the direction we have been in and there is need for a step change.

"On the government's side, it puts us under pressure to deliver those services and that will reposition Nigeria so that we will not be so vulnerable as we have been in the past to oil price movements".

In his remarks, Acting President Yemi Osinbajo said despite the problems, militating against the development of the country, progress is still possible.

He said, "But as we tackle the problems it is really like propelling a car, while the engine is still running. That is really what we need to do and while this vehicle of ours is moving forward we must be doing the repairs at the same time. We cannot fold our arms and say there is a problem with power.

"Look at India, 40 per cent of the firms generate their own power. Yet they have the difficulties that we have but they are making the progress despite those constraints. And I think that we also can make progress despite our constraints. The way to do it is simply what India and any other country will do. It is the commitment to ensuring that we incrementally make this progress.

He said the commitment must come from government and also the private sector, noting that they have both identified certain critical things that must be done.

Osinbajo recalled that when President Muhammadu Buhari launched the Economic Recovery and Growth Plan (EGRP) sometimes in April, one of the things that he emphasized was the fact that Nigerians have made up their minds as to where they are going.

He said, "And think that we have the discipline to be able to do so, but this is a complex environment; it is a complete economy. And I think that we must ... the government.

"And I have said this repeatedly, that in some sense we are fortunate to have a leader like the president who at least we know- straightforward, honest and committed to ensuring government expenditure is spent the way it should be spent, and that people don't do what they like.

"To that extent, I think we have the right environment at least in terms of government discipline and all of that to be able to deliver on the promises that we have made. And all I will just want to say to the private sector is be sure that we have enough willing and able partners. There is no way we can ever be perfect. I mean government is a behemoth, where there are so many problems and issues.

"But, do not doubt for one moment at all, our commitment to ensuring that we are able to deliver on the promises that we have made.

Nigeria Faces Debt Distress Amidst Lean Revenue - DMO

Nigeria needs to ensure that it develops other sources of revenue asides oil as the country may run into a debt distress if there is prolonged shock on its oil revenue, the Debt Management Office (DMO) has warned.

The DMO, in its annual report, said analysis of the standard stress test of the external and domestic debt of the federal government showed that the present value of the debt to GDP ratio of the country rose at an average of 24.2 per cent annually during the period of 2017-2036.

"The stress tests or combined shocks, when applied to the revenue-based indicators showed a substantial deterioration in ratios, indicating that any prolonged shock on revenue could lead to debt distress in the medium to long-term, if other sources of revenue are not developed to enhance the revenue", the report stated.

Nigeria's total debt presently stands at N19.159 trillion as at March 31, 2017 and the Minister of Finance yesterday also stated that the country can no longer borrow.

The DMO report showed that the weighted average interest rate of domestic debt was relatively high at 11.11 percent per annum, as a result of the tight monetary policy stance of the Central Ban of Nigeria (CBN), even As the Monetary Policy Rate (MPR) was increased to 14 per cent since July, 2016, impacting the cost of government's domestic borrowing.

However, the weighted average interest rate of FGN's total debt portfolio was 9.19 percent as at end December 2016, compared to 10.77 per cent in 2015, representing a decrease of 1.58 percentage points.

The dominance of concessional external debt in the external total debt portfolio at about 83 per cent as at December, 2016, with average interest rates of about 1.25 per cent per annum and average tenor of about 40 years helped to reduce the average interest rate of external debt and the overall cost of debt in general.

Meanwhile, without violating domestic and foreign borrowing, the Debt Management Office (DMO) has pegged federal government borrowing threshold for this year at $22.07 billion.

In its 2016 annual report, DMO explained that federal government borrowing limit in 2017 was guided by the government's conservative debt management strategy of using the Country-Specific threshold of 19.39 per cent for Present Value (PV) of total Public Debt-to-Gross Domestic Product (GDP) ratio in the medium-term, as against the country's international peer group threshold of 56 per cent to measure its debt sustainability.

According to DMO, Net Present Value (NPV) of Total Public Debt-to-GDP ratio for 2016 for federal government was projectedat 13.5 per cent.

The report noted: "Given the Country-Specific ratio of 19.39 per cent for NPV of Total Public Debt-to-GDP ratio (up to 2017), the borrowing space was 5.89 per cent of the estimated GDP of $374.95 billion for 2017.

"To this end, the maximum amount that could be borrowed (domestic and external) by the Federal government in 2017 without violating the country-specific threshold would be $22.08 billion (i.e. 5.89 per cent of $374.95 billion)."

DMO stated that its strategy, 2016-2019, provides for the rebalancing of the debt portfolio from its composition of 84:16 as at end-December, 2015, to an optimal composition of 60:40 by end-December, 2019 for domestic and external debts, respectively.

It continued: "It supports the use of more external finance for funding capital projects, in line with the focus of the present Administration on speeding up infrastructural development in the country, by substituting the relatively expensive domestic borrowing in favour of cheaper external financing.

"This policy stance has been reinforced by the recent deterioration in macroeconomic variables, particularly with respect to the rising cost of domestic borrowing. Hence, the shift of emphasis to external borrowing would help to reduce debt service burden in the short to medium-term and further create more borrowing space for the private sector in the domestic market.

Senate, Adeosun, CBN Gov, Meet To Curb Interest Rate

Meanwhile, the Senate yesterday met with the Minister of Finance, Mrs. Kemi Adeosun; the governor of Central Bank of Nigeria (CBN), Godwin Emefiele, as well as heads of deposit money banks where they agreed to quickly maintain the stability of rising interest regime.

The lending rates to the private sector had hovered between 28% to 30% across board in 2017 and was collapsing a lot of businesses in the country.

The Senate had discovered that the unstable rates were seriously placing a major burden on business investments and household consumption spending in the country and moved a motion to evolve strategies to curb it.

Yesterday, the stakeholders met with the Senate President Bukola Saraki at the National Assembly complex and agreed that the interest rates have stabilized and must not be allowed to jump.

Speaking to journalists after the meeting, the Senate committee chairman on banking, insurance and other financial institutions, Senator Rafiu Ibrahim said, "we discovered that we needed to meet and we all bared our minds. We agreed that now as the interest rates have stabilized, all hands must be on deck for us to achieve a better interest regime.

"Everybody is aware that three things play: exchange rates, inflation rate and interest rates and they must be jumbled together to have a stable economy. And we are hopeful that as the financial authority, the fiscal authority and the National Assembly have agreed, we shall implement workable measures to make our economy stabilize. From our meeting, we all agreed that we must work on many interventions, many angles to stabilize the nation's economy".

Osinbajo Visits PMB In London

Meanwhile, Acting President Yemi Osinbajo yesterday departed for London to meet with President Muhammadu Buhari.

This was disclosed by the spokesman of the acting president, Laolu Akande, in a tweet.

Akande tweeted: "Ag. President Osinbajo meeting with President Buhari in London today, and returning to Abuja immediately afterwards".

LEADERSHIP recalls that Buhari had left the country for London on May 7, 2017 for medical vacation.

Last week, the wife of the president, Aisha Buhari, also joined her husband in London.

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