Nigeria: Stakeholders Push for Lower Borrowing to Fund Budget

10 January 2022

Stakeholders in the financial sector of the nation's economy have urged the federal government to take structured steps toward reducing the nation's penchant for borrowing to finance its national budget annually.

To this end, they advised the government to, instead, look inward to raise the funding needed to finance the national budget.

Though they acknowledged that there is nothing bad in borrowing to finance the budget, they were more concerned about the long term ability to honour those debts obligations without a ripple effect on the nation's fiscal system. The fact that Nigeria is not producing much that could augment the rising debt profile is a serious concern for the stakeholders.

The CEO of Centre for the Promotion of Private Enterprise (CPPE), Dr Muda Yusuf, while reacting on the 2022 budget said, the sum of N3.88 trillion budgeted as debt service is a substantial amount when compared with the capital budget provision of N5.46 trillion. "Debt service payment is typically a first line charge in budget releases. The ambitious budget size of N17.1 trillion and the unpredictable revenue outlook elevates the risk of higher fiscal deficit than projected. This has implications for macroeconomic outcomes of high fiscal deficits, a new round of monetisation of the deficit, pressures on the exchange rate and the general price level," he pointed out.

Yusuf noted that the rising debt profile of government raises serious sustainability concerns, saying, although government tends to argue that the condition not a debt problem, but a revenue challenge.

"The truth is that debt becomes a problem if the revenue base is not strong enough to service the debt sustainably. It invariably becomes a debt problem.

"What is needed is the political will to cut expenditure and undertake reforms that could scale down the size of government, reduce governance cost and ease the fiscal burden on government. It is important to ensure that the debt is used strictly to fund capital projects that would strengthen the productive capacity of the economy. This is the position of the Fiscal Responsibility Act.

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"Additionally, emphasis should be on concessionary financing, as opposed to commercial debts which are typically very costly. It is imperative for the country to operate as a true federation which it claims to be. The unitary character of the country is making it difficult to unlock the economic potentialities of the sub nationals. It is perpetuating the culture of dependence on the federal government."

On his part, the former director general at the West Africa Institute for Financial and Economic Management (WAIFEM) and chairman of the Foundation for Economic Research and Training, Professor Akpan Ekpo, called for caution from government on external borrowing.

"It is true that you borrow when you don't have enough revenue to finance your projects, but looking at the budget, N3 trillion is being set aside for debt servicing, not even for paying the principal. Even though the government says the GDP ratio puts us within the benchmark to borrow, it is not GDP that pays debt. Revenue pays debt and if we look at our debt-to-revenue ratio, we have cause to worry.

"They tried to implement the programmes within the budget which is commendable but in terms of seeing what is happening, the government has not really done well and then there is the issue of debt profile. We are borrowing a lot and government is not that transparent about the projects being financed by the borrowing and how far the projects have gone," he pointed out.

Speaking in an exclusive interview with LEADERSHIP, renowned economist, Dr. Tayo Bello, while expressing displeasure over the amount the country will use to service its debts as contained in the 2022 budget, called for tax aggression to ensure that more taxable Nigerians pay tax, saying tax enforcement in the country is very low when compared to those qualified to pay tax but are not doing so.

He believes raising more revenue from tax could limit the nation's penchant for borrowing, thereby reducing the country's debt profile.

Stressing that it is high time government raised more money from the local market than foreign loans, he said the volatility in the foreign currency exchange market would always put Nigeria at a disadvantage in this circumstance.

Similarly, a lecturer, Lagos Business School (LBS), Dr Frank Ojadi, said: "Overall, we will get into a situation that we are into last year again this year because the indices of budget implementation in 2021 will be the same for 2022 because the 2022 budget is hurriedly put together."

On her part, the director-general of Lagos Chamber of Commerce and Industry (LCCI), Dr. Chinyere Alumona said government must explore cheaper alternative sources of financing away from debt.

"In the revised budget as passed by the National Assembly, the projected retained revenue was raised to N10.3 trillion against the N10.13 trillion proposed in the revised 2022 budget. This may be too ambitious when we look at the budgeted revenue performance for 2021," she pointed out.

Alumona noted that most of the items for which more funding was sought are recurrent expenditures, stating that government may be under pressure regarding these recurrent expenses, 'but it is not best practice to borrow for consumption.'

"Since revenue fundamentals are currently weak, the ideal thing is to reduce the cost of borrowing, specifically the high deficit and debt cost projected in the revised federal budget. The federal government should focus more on non-interest asset-linked securities as these unlock revenue and growth in the long term.

"The federal government should allow the private sector to invest in some infrastructure projects that are commercially viable to generate revenue to fund her budget instead of debt financing," she pointed out.

Analysts at Cowry Assets Management Limited, noted that much of the country's rising debt was spent on recurrent expenditure and abandoned capital projects that could have eased business operations and catalysed profitability that would, in turn, yield higher income via taxation for the government; hence, the imbalance between the physical infrastructure and the huge debts so far.

On the 2022 budget, they said. "We therefore expect the federal government to tie each tranche of loan to a particular capital project as exhibited with its Sukuk loans which have been more effective in delivering infrastructure.

"Meanwhile, we commend the positive vibe coming from the side of the Executive as presenting the budget in good time would enable early implementation."

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