The Debt Management Office has said Nigeria’s total public debt hit N87.38tn at the end of the second quarter of 2023.
The figure represents an increase of 75.29 per cent or
N37.53tn compared to N49.85tn recorded at the end of March 2023.
The DMO in a report on Thursday said the debt includes the
N22.71tn Ways and Means Advances of the Central Bank of Nigeria to the Federal
Government.
The DMO stated, “Nigeria’s total public debt stock as at
June 30, 2023, was N87.38tn ($113.42bn). It comprises the total domestic and
external debts of the Federal Government of Nigeria, the thirty-six states, and
the Federal Capital Territory.
“The major addition to the Public Debt Stock was the
inclusion of the N22.712tn securitized FGN’s Ways and Means Advances.”
The statement also noted that other additions to the debt
stock were new borrowings by the Federal Government and the sub-nationals from
local and external sources.
It added, “The reforms already introduced by the present
administration and those that may emerge from the recommendations of the Fiscal
Reform and Tax Policies Committee, are expected to impact debt strategy and
improve debt sustainability.”
The DMO had earlier projected that Nigeria’s public debt
burden may hit N77tn following the National Assembly’s approval of the request
by former President Muhammadu Buhari to restructure the CBN’s Ways and Means
Advances.
The Ways and Means Advances is a loan facility through which
the CBN finances the shortfalls in the government’s budget.
The Director-General of the DMO, Patience Oniha, during a
public presentation of the 2023 budget organised by the former Minister of
Finance, Budget and National Planning, Dr Zainab Ahmed, noted that the debt
would be N70tn without N5tn new borrowing and N2tn promissory notes.
However, the latest data showed that the current debt stock
of N87.38tn exceeded the DMO’s projection by N10.38tn.
Further breakdown showed that Nigeria has a total domestic
debt of N54.13tn and total external debt of N33.25tn.
While the domestic debt makes up 61.95 per cent of total
debt, the external makes up 38.05 per cent.
The PUNCH also observed that there was a significant
increase in both domestic and external debt within three months.
The domestic debt rose by 79.18 per cent from N30.21tn while
the external debt rose by 69.28 per cent from N19.64tn in Q1 2023.
In its 2022 Debt Sustainability Analysis Report, the DMO
warned that the Federal Government’s projected revenue of N10tn for 2023 could
not support fresh borrowings.
According to the office, the projected government’s debt
service-to-revenue ratio of 73.5 per cent for 2023 is high and a threat to debt
sustainability.
It noted that the government’s current revenue profile could
not support higher levels of borrowing.
In a report titled, ‘Report of the Annual National Market
Access Country Debt Sustainability Analysis (DSA),’ the debt office said, “The
projected FGN Debt Service-to-Revenue ratio at 73.5 per cent for 2023 is high
and a threat to debt sustainability.
“It means that the revenue profile cannot support higher
levels of borrowing. Attaining a sustainable FGN Debt Service-to-Revenue ratio
would require an increase of FGN Revenue from N10.49tn projected in the 2023
Budget to about N15.5tn.”
DMO stated that the government must pay attention to revenue
generation by implementing far-reaching revenue mobilisation initiatives and
reforms including the Strategic Revenue Growth Initiatives and all its pillars
with a view to raising the country’s tax revenue to GDP ratio from about 7 per
cent to that of its peer.
The Federal Government would be unable to borrow a lot as it
nears its self-imposed debt limit of 40 per cent, the DMO said.
To reduce borrowing and budget deficit, DMO stated that the
government should encourage the private sector to fund some of the capital
projects that were being financed from borrowing through the public-private
partnership schemes.
It added that the Federal Government can reduce borrowing
through the privatisation and/or sale of Government assets.
Over the years, Nigeria’s low revenue generation has pushed
the government to more borrowing.
However, President Bola Tinubu recently expressed his
administration’s commitment to break the cycle of overreliance on borrowing for
public spending, and the resultant burden of debt servicing it places on
management of limited government revenues.
Inaugurating the Presidential Committee on Fiscal Policy and
Tax Reforms, chaired by Taiwo Oyedele, the President charged the committee to
improve the country’s revenue profile and business environment.
Ways and Means
According to a Monetary Policy Committee member, Adeola
Adenikinju, regarding the fiscal sector, both the government revenue and
expenditure underperformed between January and May 2023.
In his personal statement released by the Central Bank at
the last MPC meeting, he said the FG retained revenue stood at N1.67tn, lower
than the pro-rata target of N1.97tn, which was due to the underperformance of
FAAC receipts, gross independent revenue.
He said, “In the same vein, total FGN expenditure as of May
2023, was N4.77tn, 27.8 per cent lower than the budget estimate of N6.61tn. The
shortfall came mainly from allocation for debt service, interest on Ways and
Means, and capital expenditure.”
However, he added that the rise in FAAC overtime would help
in managing the recourse of the FG and sub-national units on debts to finance
government activities.
“This would also reduce Ways and Means finance and
eventually reduce inflationary pressures from the monetary side,” he said.
Naira devaluation
The Deputy-President of the Lagos Chamber of Commerce and
Industry, Gabriel Idahosa, blamed the devaluation of the naira as a major
factor that increased the public debt, in naira terms.
He further stated that the new administration might have
also inherited undisclosed debts which have accumulated to raise the figure to
N87tn by the second quarter of the year.
He said, “The foreign exchange conversion will easily move
the debt from N37tn to about N64tn. So, before the convergence, the rate was
about N460. Now the CBN rate is about N800. So, that is almost double. So, it
is not really mysterious.
“The only thing is that there is still a gap, it shouldn’t
be up to N87tn unless additional debt was taken. It could be that some debts
were not captured until now that the new government is opening the all the
books.”
Similarly, a professor of Economics at the Olabisi Onabanjo
University, Sheriffdeen Tella, cited the floating of the naira as the major
factor that has caused the significant increase in Nigeria’s total debt.
Tella said, “You see, the naira depreciated seriously in the
second quarter. So, that depreciation would have been used to calculate the
debt. The domestic borrowing also increased because of the borrowing from the
central bank to pay up debts on subsidy.
“The government was borrowing to pay for subsidy and that
subsidy was steadily increasing. If you convert it to dollars, it won’t be so
much, but because naira has depreciated, by the time you do the multiplication,
it will increase significantly in naira terms.
Revenue challenges
An economic expert and a former Assistant Head of Research
at the CBN, Prof. Jonathan Aremu, said
there was nothing wrong with debt but stressed the need to examine the
reasons the debts were being incurred.
He said, “Like I used to say, there is nothing wrong in
borrowing. Borrowing is divided into two, when you borrow to finance the budget
that is productive and boosts economic growth, that is good. If it is borrowing
to finance infrastructure, then we have productivity in the economy. But when
you borrow for dead weights, i.e., to say it doesn’t have productive uses, that
is where the question arises. Any borrowing that is meant for domestic
consumption, not investment is a tax on the incoming generation and is not a
sustainable borrowing.”
He noted that the country appears to be borrowing for the
present population to be able to feed themselves, leaving the repayment to
future generations.
Aremu highlighted, “The money borrowed by the government
from the CBN must be paid back within a year, that is why they call it Ways and
Means. It is the way and means in which the government can use to augment its
expense. It shouldn’t be the primary thing that you use to surcharge the future
generation.”
He further stated that the country’s high debt would affect
whatever gains from subsidy. Aremu added, “The money we are paying in terms of
capital and obviously the repayment of interests will affect whatever gain we
are gaining from other sectors.”
Speaking further, MPC member, Adenikinju, noted that while
debt is an issue, work needs to be done in raising the country’s revenue.
He said, “This shows that we need to address our revenue
challenges. Debt is an issue if you do not have adequate revenue. Therefore it
is important that the government sees how it can work on revenue to service
this debt and at the same time lay sustainable economic growth for this
country.”
He stated that with some of the recent measures of the
government, such as fuel subsidy removal, addressing the exchange rate issue
and setting up a tax reform committee, would help the country grow its revenue
base.
Adenikinju further advised, “In addition to raising revenue,
we need to make sure that we do not incur more debt to the one that we have,
except we have an assurance that the debt will lead to economic growth and
generate revenue.
“The issue of cost of governance has been raised and these
are things that the government has to look into. It needs to be addressed. The
good thing about our debt is that most of them are owed to multi-lateral bodies
and the repayments are spread over a long period of time. Also, the CBN debt
has been securitised allowing repayment to be over a period of time too. So,
yes, we have debt, but the structure of the debt will not necessarily
constitute an issue.”
He added that the country would have been in more problem if
the bulk of its debt were commercial.
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