Punch News Today

FG should halt the frenzied borrowing

When should you borrow

THE news that Nigeria’s total debt in seven years outweighed total revenue generated by N13.26 trillion is indicative of the country’s precarious finances and the onerous task before President Bola Tinubu. As he puts his hand to the plough, the national debt climbed to N81 trillion on the back of the flotation of the naira. To turn the economy around, he will need to creatively manage the country’s existing debt, halt the borrowing binge it inherited, and improve revenue generation.

Data from the Central Bank of Nigeria and the Debt Management Office show that the Federal Government generated total revenue of N43.06 trillion between 2016 and 2022, but borrowed N56.32 trillion in the same period.

Leading civic-tech organisation, BudgIT, in a review of the Muhammadu Buhari administration’s economic legacy, noted that between 2016 and 2022, the government raised total revenues of N26.67trillion and expended N60.64trillion, leaving a deficit of N33.97trillion.

Total public debt was N12.6 trillion as of December 2015, but grew by N33.65 trillion to N46.25 trillion by December 2022. Borrowings from the CBN through the ‘Ways and Means’ advances were N856.33 billion as of December 2015, but grew by N22.67 trillion to N23.53 trillion by December 2022. The complicit Ninth Senate passed a bill to raise the borrowing limit on this window.

The PUNCH recently reported that the total budget deficit under Buhari was set to hit N47.43 trillion, based on data from the Budget Office of the Federation, as deficit financing has risen by 370.54 per cent from N2.41 trillion in 2016 to N11.34 trillion in 2023. There was a revenue shortfall of N14.28 trillion from the projected N43.05 trillion, as only N28.77 trillion (66.83 per cent of expected revenue) was achieved.

Following the return to civilian rule in 1999, the pioneer administration of former President Olusegun Obasanjo met $28.03 billion as foreign debt and left $2.11 billion in 2007 after successfully securing a write-off by the London and Paris clubs of foreign creditors. His successor, the late Umaru Yar’Adua, added $1.39 billion to it, while the Goodluck Jonathan government incurred additional $3.8 billion, taking the country’s total foreign debt to $7.3 billion by May 2015. But the Buhari administration went overboard; its frenzied borrowing had raised the external debt to $41.69 billion by December 2022.

Domestic debt also rose from N795 billion in 1999 to N27.54 trillion as of December 31, 2022. The International Monetary Fund said Nigeria almost emptied its treasury to service debts in 2022, which gulped 93.6 percent of all revenue.

The current government is therefore in a perilous position with little resources available to fix decaying infrastructure or add new ones. Debt financing, admits the World Bank, is critical for development, saying, “When used wisely, it can help attain sustained inclusive growth.” But it also warned, “High public debt can inhibit private investment, increase fiscal pressure, reduce social spending, and limit governments’ ability to implement reforms.” Nigeria has arrived at that dangerous junction.

The current administration must therefore apply new and strategic thinking to solving the debt crisis. Tinubu should immediately impose a moratorium on fresh borrowings except unavoidable ones and this must have been previously negotiated. Unlike his predecessor, he should assemble and work closely with a crack team of economic experts and private sector operators. There should also be a very close collaboration with the organised private sector.

In this, the administration should include strong inputs from MSMEs, and the agriculture sector associations. According to the International Labour Organisation, micro, small, medium enterprises contribute 48 percent to Nigeria’s GDP, account for 96 percent of businesses, and 84 percent of employment. Similarly, agriculture contributes 24 percent to GDP, and 36 percent of employment, reports PwC, a multinational consultancy. It would be risky leaving out these two productive sectors.

Tinubu should avoid the ‘Ways and Means’ bait. Based largely on just creating money, it distorts the economy, fuels inflation, and hinders policies to moderate interest rates. Removing the errant CBN governor, Godwin Emefiele, is welcome, but the real slog lies ahead.

Plugging revenue leakages and waste, taming corruption and drastically cutting down on luxuries and the bureaucracy will reduce the pressure to borrow. Experts insist that between N14 trillion and N30 trillion in revenue due to the Nigerian government is uncollected annually. Leakages occur in the Treasury Single Account, Stamp Duties, customs duties and other taxes. The National Bureau of Statistics has just announced an upward revision of tax-to-GDP ratio to 10.86 percent, up from 6.1 percent. This is still too low compared to the African average of 16 percent, 24 percent in the BRICS countries and 41.1 percent in European Union countries.

The over 60 government agencies that the National Assembly has identified to be withholding funds due to the treasury should be compelled to remit public funds promptly.  Tinubu must also carry out reforms of the oil sector, the country’s mainstay, to make it transparent and arrest its declining contribution to revenue receipts. Tinubu must stop the long-running looting of public funds by politicians and civil servants and their accomplices.

There must be improved revenue generation and resource mobilisation through extensive reforms of the revenue-generating agencies in the oil and gas industry, the Customs, Federal Inland Revenue Service, Nigerian Maritime Administration and Safety Agency, Nigerian Ports Authority, and others. Without exception, corruption reigns in all.

Tinubu should transparently privatise all state-owned enterprises with reputable international operators as core investors to stop waste, attract foreign and domestic investment, create jobs and stimulate productive activities. Debt management should henceforth be transparent. The 10th NASS should scrutinise every loan request and collaborate with the executive branch to pass laws to encourage private investments to reflate the economy.

If the new administration must borrow, it should be loans tied to critical infrastructure; it must also build up the sovereign wealth, liberalise the economy and open the railways, ports, airports, power, and other sectors to local and foreign private investors.

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