Confusion over borrowing

 

Last week Tuesday, the finance minister, Kemi Adeosun, speaking at the quarterly business forum in Abuja, declared that Nigeria will no longer borrow to fund its budget but will instead raise money internally through taxes to do so.  “We cannot borrow anymore; we just have to generate funds domestically to fund our budget. [We will] mobilise revenue to fund the necessary budget increase,” she was reported as saying. Her declaration was instantly taken to mean the government will back out of plans, afloat for over a year now, to borrow at $2 billion from the World Bank and the African Development Bank (AfDB). The planned borrowing has been held up by Nigeria’s inability to meet key fiscal reforms as demanded by the Brentwood institutions. It left many wondering how the government was going to finance the budget since, in May, the Director General of the Budget Office reminded the country of the shortfall of $7.5 billion in the 2017 budget, and how the government plans to address it with a $3.5 billion dollar domestic and international loans.

Barely two days later, the finance minister recanted. Speaking through the Director of information in the ministry, she said “Nigeria will continue to borrow. Nothing has changed. The Economic Recovery and Growth Plan provides for an increase in spending over a three-year period, which is reflected in the 2017 budget. Going full blast, she justified the government’s position by stating that Nigeria’s debt to GDP ratio is low when compared to her contemporaries in Africa and across most of the developed world. “We have headroom to borrow and are doing so aggressively in the short to medium term in order to address our infrastructure deficit and to stimulate growth.”

We wonder what motivated the minister’s earlier position even when the government’s borrowing plans are quite clear and it was too obvious that the 2017 budget revenue shortfall – about N7.44 trillion – cannot be funded by internally generated revenue given that even revenue projections so far have not been met.

Her flippant statement and the recantation just two days after, without denying or clarifying the initial statement, are pointers to chaos, disorganisation and confusion within the government especially as attention shifts from real policy to raw political and power calculations in the absence of a clearly incapacitated president, who should, in the least, have spared the country the crisis she finds herself in as a result of his ill health. These flip flops are the reasons why our perception index is so low. They do real damage to our investment credentials.

Much more important to us is the increasing debt burden this government has been piling on the country. Since coming to power two years ago, the government has borrowed over N8 trillion and is in the process of borrowing more. Under the guise of a low debt to GDP ratio, the government has been on a borrowing spree to finance expenditure, including salaries, without giving a thought to how the debt shall be repaid.

According to the Debt Management Office, DMO, the nation’s indebtedness to creditors – local and foreign – stands at N19.2 trillion by the end of March 2017. Total debt stock is estimated to rise to N23 trillion by the end of the year.  Earlier in May, the International Monetary Fund, IMF, projected that the country’s indebtedness will hit 24.1 percent of GDP by 2018.  Much more worrying is the view of the World Bank that Nigeria’s debts may become unsustainable due to its declining revenues which may greatly affect its debt servicing to revenue ratio.

This much was confirmed by the DMO’s Debt Sustainability Analysis (DSA), which indicates that despite the theoretical headroom for more borrowings as suggested by its low debt to GDP ratio, Nigeria’s “debt portfolio remains mostly vulnerable to the various shocks associated with revenue, exports and substantial currency devaluation”.

We suffered to exit the Paris and London clubs of creditors in 2005/6. The government must be cautious and not plunge us right back into another debt crisis again.

 

Editorial

 

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