The Director-General of the Debt Management Office, DMO, Mrs Patience Oniha, yesterday attributed Nigeria’s high debt profile to a lack of revenues and approval of the annual budget with a deficit by the National Assembly, which increased the debt stock of the country.
She said Nigeria had been running on a budget deficit for many decades, which in turn affected its revenue profile.
Appearing before the House of Representatives Committee on Finance interfacing with the DMO on the heels of the consideration of the Medium Term Expenditure Framework MTEF and Fiscal Strategy Paper FSP from 2023 to 2025, Oniha said Nigeria was indebted to the tune of N41. 6 trillion
According to her, until the issues of personnel, overhead and capital expenditure are properly addressed in the budget, borrowing will not stop.
”By December 2021, it was N39.556 trillion. As of March of this year, we publish quarterly, it was N41.6triilion. On average, (the federal government) is about 85 per cent of the total. Technically, the bulk of it is the federal government’s.
“Debt has grown and that has come really from the annual budget. There are three levels where those borrowings have increased. We have been running deficit budget for many, years. So, each time you approve a budget with a deficit, by the time we raise that money, because when you approve, it is giving us a mandate, authority to borrow.
”It will reflect in the debt stock, so debt stock will increase. Also remember that states are equally borrowing. So we add their own. They also have laws governing their borrowings.
“The Second leg to that really is as debt stock increases, so does debt service. And so, the clear message is go through the budget, we have been having deficit budget for many years and have been borrowing significantly.
How to reduce debt profile
“From COVID in 2020, the level of borrowing had increased significantly as you know. Those budgets pass through this House. The issue is how do you reduce that debt? One of it is revenues, which we have talked about.
”So, if revenues are high, your deficit will be lower and your new borrowing will be lower and then your new borrowing will be less and your debt stock will be slower and debt service to revenue will now be so high.
“So, the challenge is, we have been borrowing because of shortfalls. So, the other thing to do is let’s look at our expenditure profile, what can we do to reduce this because you are asking me what is the remedy.
”It is from the budget. There is revenue, there is expenditure listed in various categories – personnel, overhead and capital. So, those are what bring out the deficit we borrow for. It is those things that should be interrogated, in addition to increasing revenue significantly.
“Let me say that a World Bank report just showed that in terms of debt-to=GDP ratio, Nigeria is low but for debt-service-to revenue ratio, we are very high. So, if you look at tax-to-GDP ratio of these other countries, they are in multiples of Nigeria.
”The World Bank report did a survey and I think it’s about 197 countries and Nigeria is number 195, meaning we beat only two countries and that was Yemen and Afghanistan and I don’t think we want to be at those places.
”So, we can’t talk about borrowing without talking about revenues and we can’t say why is the debt stock growing. It’s growing because we are running deficit budget and some of you may be aware we are also issuing promissory note to refinance arrears of government, which also comes to the National Assembly for approval.
“What we as DMO have been saying particularly since 2020, when the MTEF for 2021 to 2023 was being prepared, is to say hey, let’s begin to look at revenues because as debt is growing, debt services are increasing.
”So, the language we used was for debt to be sustainable in the medium term, sustainable means you can service your debt without difficulty, without it consuming all your revenues because you have very little for other projects.
”You must look at revenues very closely and I think the discussions you have had with the Customs is one part of it. There are many other revenue generating agencies. So, we must increasingly begin to look at our revenue for funding activities as opposed to deficit.
“We talk about N11 trillion deficit and borrowing for 2023, how much is the revenue there? That’s one. When we looked at the first tranche that was N10 trillion for full year of subsidy and N9 trillion for subsidy next year, the size of the borrowing was 62 per cent of the budget. That’s high.
”The responsibilities, I think, are on both sides. Query the various expenditure lines and see what it is we can handle. So, if the deficit is lower, the borrowing will be lower and that’s how to grow on a slower pace.”
The DMO DG justified the past borrowings, pointing to the modernization of the airports and the construction of more rail-lines and roads.
“I think we should be fair to ourselves as people serving Nigeria to say we can’t see what we use the borrowing for. This might not be exactly true. Look at the airports. How many do you have?
”You have a new international airport in Abuja, you have the modernization in Kano, even Enugu that is now international. Those came from borrowings. The rail-lines have also come from borrowings.
”So, it is not a zero performance. Those things generate revenue in some other countries. We have those projects not just this one in Abuja, then on Sukuk, which is a project tied borrowing, you have seen those ones,” she said.
In his remarks, deputy chairman of the committee, Saidu Abdullahi, who presided over the session, said that the country was on a good pedestal to keep borrowing.
“I want to appreciate the fact that for a developing country, the need for borrowing will always be there. It doesn’t matter how much we make, the country must borrow.
”What we should be interested in is the sustainability of what we are borrowing and from what she has said, the country is on a good pedestal in terms of managing its borrowing,” he said.