The Debt Management Office warned that it was not advisable to finance the government with borrowing, suggesting that the borrowing should be for special purposes and urging the FG to make more on income while the stock Nigeria’s growing debt is increasing due to new borrowing in annual budgets and new borrowing approved under the Medium Term External Borrowing Plan.
This was disclosed in a statement by the Director General of the Debt Management Office, Ms. Patience Oniha, during the 3-day interactive session on the 2022-2024 Medium-Term Expenditure Framework (MTEF) and Accountability Document. budget (FSP) to the National Assembly (NASS) on September 1, 2021.
She revealed that Nigeria’s borrowing was high when the country entered recession and was based on the Economic Growth and Recovery Plan (EGRP) with the aim of pulling the economy out of recession.
âSubsequently, the level of borrowing started to drop, but not significantly, but at least there was a tendency for it. Then in 2020, when the budget was revised due to the socio-economic implications of COVID-19, borrowing increased by about double. Thus, the new borrowing in the first 2020 budget was around 1.6 trillion naira, the revised budget about 4.6 trillion naira â, she said.
The head of the DMO added that in the medium and long term, it is not advisable to finance the government with loans.
âIn our presentation, we took the new borrowing out of the budget and, as the Eminent President said, if we continue this trajectory of 4.6 trillion naira last year, this year we have incurred debt. at the rate of 5.356 trillion naira. is actually growing. Therefore, as debt managers, we are concerned about the activities that will generate income that we can use for debt service, âshe said.
She added that despite the debt-to-GDP ratios of other countries much higher than that of Nigeria. Nigeria was at 21.6% in December 2020, while countries like the US and UK have much higher ratios and in some cases over 80%. But their debt service-to-income ratio is 10%, at most 15%.
In addition, Nigeria’s outstanding debt has increased due to new borrowing in annual budgets and new borrowing approved under the Medium Term External Borrowing Plan, both duly approved in accordance with the DMO Act and to the law on fiscal responsibility.
âOur first recommendation is that we need to do a lot more on revenue. What will the increased income do for Nigeria? It will reduce the level of new borrowing and the debt service-to-income ratio. The other option is to continue to borrow at our current debt service levels, which we do not recommend as public debt could become unsustainable.
âOur second recommendation is that we should only borrow for priority projects and for income-generating projects.
âOur third recommendation is that in addition to increasing revenues, we can reduce new borrowing by actively using public-private partnership (PPP) agreements to finance investment projects. The DMO is happy to note that there is now a toll policy which was recently approved by the FEC. It’s a way to generate income â, said Oniha.
She warned that between January and June 2021, the ratio of debt service to income was around 34%. However, the actual ratio is higher, which is not good for any country. “When we say that there is a problem of income, there is a problem of income” she said, citing that 2022-2024 Medium Term Expenditure (MTEF) borrowing is high and urging Nigeria to dramatically accelerate income generation.
“If we want to borrow to grow the economy, let’s focus more on income generation so that we don’t spend all of our income on debt servicing or even borrowing on debt servicing.” she insisted.
In case you missed it
Recall Nairametrics reported last month that the Debt Management Bureau said remedies are needed to manage the country’s low incomes and growing amount of new borrowing.
Oniha warned that successive low budget incomes, which are further compounded by less than 100% achievement, have resulted in high levels of borrowing in recent years. As might be expected, these borrowings resulted in a high rate of growth in outstanding debt as well as debt service. She added that the trend is the same in the 2022-2024 CDMT project.