Debt servicing gulps N8trn as FG seeks more loans

President Muhammadu Buhari said yesterday in Riyadh, Saudi Arabia, that Nigeria is willing to mobilize additional capital from development finance institutions for the upgrade of critical infrastructure in the country. This is even as the Federal Government has so far spent N7.9trillion in servicing various external and domestic debts in five years, almost as huge […]

President Muhammadu Buhari said yesterday in Riyadh, Saudi Arabia, that Nigeria is willing to mobilize additional capital from development finance institutions for the upgrade of critical infrastructure in the country.

This is even as the Federal Government has so far spent N7.9trillion in servicing various external and domestic debts in five years, almost as huge as the country’s total budget of 2018.

Buhari who spoke at the meeting held on the margins of the Future Investment Initiative (FII) Forum in the Saudi Arabian capital city, said Nigeria will leverage on a United States of America’s facility to address current challenges confronting its power sector as well as general upgrade of infrastructure.

He stated this during a meeting with the US Treasury Secretary Steven Mnuchin, where they discussed on investments in Nigeria under the new United States International Development Finance Corporation (USIDFC), which provides $60 billion for investments in developing nations.

Buhari thanked the US government for its continued support to Nigeria, especially in accessing the $60 billion infrastructure fund under the USIDFC.

 

Fortune gone in servicing loans

But Daily Trust reports that Buhari’s government had so far spent about N7.9trn to service both domestic and foreign debts it incurred in five years – from 2015 to 2019, analysis of the country’s budgets in five years has shown.

The N7.9trn which was captured in the country’s annual budgets in last five years showed that in 2015, the FG spent N943 billion for debt service. It spent N1.36trn in 2016 and N1.66trn in 2017.

The analysis also showed that in 2018, the FG spent N2.23trn on debt servicing while in 2019, it had so far spent N2.14trn.

 

Budget servicing overwhelming – Experts

Meanwhile, a Professor of Development Economics, University of Abuja, Professor Sarah Anyanwu, said the burden of servicing Nigerian huge debts was becoming overwhelming for the country to handle.

She noted that not all borrowings should be considered good, and that government should borrow externally only for projects with guaranteed return on investment that will be able to pay back the loans.

“It is not the borrowing that is the problem; it is the usage of the money. The problem is not taking loans and incurring debt either internal or external, the problem in Nigeria is diversion of the loans to other purposes,” she said.

“If the loans are used for the purposes that they have been stated for, then there won’t be a problem. Important thing is that there must be accountability and it must be used judiciously,” she said.

Also speaking, Professor Mohammed Yelwa expressed worry over the consistent increase in the debt stock, saying the implication is that the country will get to a point where all it does is generate revenue to service debts.

He noted that the trend over the years is that cost of servicing debts is more than the revenue such that it is difficult for the Federal Government to execute meaningful projects.

Professor Yelwa said using over N800billion to service debts in the first six months of 2019 is alarming, stressing that it affects negatively on the productive capacity of the economy.

He advised that the Federal Government must be proactive in diversifying the economy by improving its infrastructural capacity.

Also, the Director General of Lagos Chamber of Commerce and Industry (LCCI), Muda Yusuf, described the growing national debt as a cause for concern as the debt profile grew from N12.6trillion in 2015 to N24.9 trillion in the first quarter of 2019.

This, he said, was an increase of 9 per cent and expressed worry over the capacity to service the debts.

“For instance, the debt service provision in the 2019 budget is a whooping N2 trillion; whereas the total capital budget was N2.9 trillion. This implies that the debt service commitment is 70 per cent of capital budget allocation.  Debt to revenue ratio is about 30 per cent which is also on the high side.

“In the 2020 budget, debt service commitment and recurrent spending are beginning to crowd our capital expenditure. This scenario is not in alignment with the aspiration to build infrastructure and a competitive economy.  Debt service of N2.45 trillion is more than the capital budget of N2.14 trillion,” he noted.

He said the opportunity cost for the economy and citizens is very high; adding that, “there is also the exchange rate risk inherent in the increasing exposure to foreign debt which is also worrisome.”

The LCCI boss stressed the need for government to look beyond tax credit in its quest for more complimentary funding sources for infrastructure and suggested equity financing option.

“But for this to happen, the policy and regulatory environment must be right,” he said.

 

How FG is navigating its way

However, the Minister of Finance, Budget and National Planning, Mrs. Zainab Shamsuna Ahmed, has consistently maintained that debt is not the problem for Nigeria.

She said based on debt to GDP ratio, Nigeria’s total debt “is still very comfortable.”

She, however, admitted that revenue generation remained a huge problem for the country.

But Analysts told our correspondents yesterday that debt servicing “is posing serious threats to government finances and raising sustainability concerns.”

However, the minister’s adviser on media, Mr. Yunusa Tanko told Daily Trust that  government would block leakages and raise revenue to exit the situation.

“When the minister says debt is not our real problem, she relates it to the debt threshold vis-a-vis the international average.

“Secondly, our revenue leakages are just too many and there are lots of revenue streams that have not been captured including putting more bankable taxes.

“Therefore, the minister’s projection is that if leakages are blocked and more revenues banked, then we should be fine. Government will drive down debts if we harness our revenue and the sources are there and opportunities endless,” Mr. Tanko said.

The minister had during a presentation at the Business Day conference in Abuja, also raised concerns over the low revenue profile of government and limited impacts.

Mrs. Ahmed also explained what government was doing to drive down debts and by implication debt service figures in the long term.

She said, “We are implementing a debt management strategy aimed at achieving an optimal debt balance through (a) the increase of oil and non-oil revenues, (b) the continued use of diversified borrowing instruments including Sukuk and Green Bonds, (c) a continued focus on concessional loans and lower cost external debt.

Tax revenues were expected to rise in tandem with economic recovery, although with a one-year time lag for corporate and trade related taxes, she added.

On issues of sustainability relating to the debt service to revenue ratio, she said: “Integral to achieving our collective goals under the eleven priority areas is the need for a significant push towards mobilizing domestic revenues, increased coordination and alignment of fiscal, macroeconomic, monetary, and trade policies, and the prudent management of emerging fiscal risks.”

On enhancing revenue generation, collection and monitoring, she indicated that this will be achieved “particularly through (a) continued implementation of the Strategic Revenue Growth Initiatives (SRGI); (b) the ongoing reconciliation and monitoring of revenues by the Presidential Revenue Monitoring and Reconciliation Committee; (c) the review of current tax laws and development targeted of fiscal policy reforms to coincide with the annual budget cycle; and (d) the deployment of innovative ICT solutions (such as the Ministry’s Project Lighthouse) aimed at leveraging and mining big data to enhance revenue tracking for informed decision-making.”