As Nigeria’s debt profile hits N35.46 trillion, there are fears that the country risks being trapped by debt, except there is increase in revenue collection or reduction in the rate of borrowing.
Senior lecturer, Department of Economics, University of Lagos, Dr. Tunde Adeoye, has consequently advised the federal government to reduce its annual budget in order to stem mounting debt profile in the country.
Adeoye, an associate professor, gave the advice in an interview on Wednesday, in Ota, Ogun State.
The economist spoke while reacting to the federal government proposed plan of seeking Senate approval to borrow 4.1 billion dollars and 710 Euros.
President Muhammadu Buhari on Tuesday in Abuja wrote to the Senate for approval to borrow the amounts.
Adeoye stressed the need for the federal government to reduce its expenditures so as to stem the debt burden that keeps mounting as a result of continuous borrowing.
“Why must we embark on a budget that is more than our revenue? If we know that our internally generated revenue annually is N5 trillion, let’s cut our budget to N5 trillion,” he said.
The economist noted that if the federal government borrowed additional money, the implication is that debt servicing would increase and other things like infrastructure be neglected.
Adeoye said more than over 80 per cent of our annual revenue is used in servicing debt, adding that this was not good enough for a nation working toward sustainable economic growth.
“Cutting our expenditure according to our revenue is necessary as servicing of debt has taken away almost all our annual revenue.
“And we keep increasing debt; who is going to repay the debt, is it the unborn generation?,” the don asked.
He urged the federal government to look inward by reducing its budget rather than continued borrowing.
Also speaking, senior lecturer, Department of Economics, Covenant University, Ota, Prof. Evans Osabuohien, said that taking more loans would increase the debt profile as one quarter of the nation’s revenue was used to service debt. Osabuohien said going to borrow more money is like entering into more debt trap and trouble.
However, he said: “There is nothing bad in borrowing if only the money is used for production purposes and building capital projects.”
The economist also advised the federal government to utilise what the country generates instead of going to borrow more funds.
Osabuohien stressed the need for the government to sell assets that were not yielding returns and use the money for intended projects.
“Let’s look at the nation’s assets, how productive they are; if they are not productive, dispose of the assets and use it for the capital projects,” he urged.
Nigeria’s total public debt rose to N35.46 trillion as at June this year, according to the Debt Management Office (DMO). Total public debt is the domestic and external debts of the federal government, the 36 state governments and the Federal Capital Territory (FCT).
Between December 31, 2020 and June 30, 2021, the total public debt stock grew by 7.75 per cent.
Director-general of the debt office, Ms. Patience Oniha made the disclosure during a presentation of the nation’s debt profile in Abuja.
On the domestic front, federal and sub-national governments owe N21.754 trillion representing 61.34 per cent, while N13.711 trillion is owed to foreign borrowers including China, World Bank and IMF drawdown. The federal government has a maximum share of the debt at 83.07 per cent, while the states and FCT owes 16.93 per cent.
A breakdown of the external debt shows multilateral (World Bank Group, AfDB Group) 54.88 per cent; bilateral (China, France, Japan, India, Germany) 12.70 per cent; commercial (Eurobonds, diaspora Bond) 31.88 per cent; and promissory Notes: 0.54 per cent.
Loans from China are 27 per cent of the total external debt, with bilateral and multilateral segments of the external debt accounting for the higher percentage of the foreign debt stock.
Oniha said the government’s overdraft to the Central Bank of Nigeria (CBN) through ways and means was started at N10 trillion, but was not specific on the current amount of the government overdraft collection from CBN. She said plans are on the way to formally convert the overdraft to debt.
When that is done and the borrowing plans in the medium-term expenditure framework are done, Nigeria’s debt to gross domestic product is estimated to rise to about 35 per cent. The federal government set a 40 per cent threshold as a debt to GDP ratio for itself.
On the issue of the rising public debt, Oniha said government borrowings are project-tied. She said Nigeria’s Eurobond has many benefits for the nation’s economy and capital market. Ms. Oniha said issuing Eurobonds has been a potent tool for building up Nigeria’s external reserves. A healthy level of external reserves supports the naira exchange rate and Nigeria’s sovereign rating. “We have built up Nigeria reserves with the issuance of our Eurobonds,” she stated.
The DMO DG said raising funds externally through Eurobonds to finance budget deficits reduces the level of sovereign borrowing in the domestic markets.
Saying there is no point to panic to panic over the increasing debt rate, Oniha said the only way Nigeria can stop borrowing is to generate more revenues to make up for the deficit in the national budget and still build infrastructure.