Notwithstanding the fact that Nigeria’s current Debt-to-GDP ratio is sitting comfortably within the acceptable international threshold, the Federal Government should heed the repeated advice of global financial institutions to cut down excessive borrowing and put more energy into private investment in the economy. For the umpteenth time in recent years, the World Bank Group and the International Monetary Fund (IMF) have cautioned against Nigeria’s rising borrowing profile and the economic consequences of debt overhang.
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Last week, the World Bank, through its Vice President for Africa, Mr. Hafez Ghanem, urged the Federal Government to reduce its borrowing and tap private investments that will yield multiplier effects on many sectors of the economy. Although Nigeria’s current Debt-to-GDP ratio is 20 percent, it is within the acceptable global threshold of 56 percent. We agree with Ghanem that the best option for the Nigerian government is to channel more investments to fund development needs. His warning that excessive borrowing without proper utilisation of the loans could pose multiple economic challenges in future is also timely.
At the moment, the Federal Government plans to borrow N1.63 trillion to finance N1.950 trillion deficits in the 2018 budget. It had already borrowed N5.8 trillion in three years to fund staggering budget deficits. For instance, between January and June 2016, borrowing from the domestic market to augment shortfalls in revenue, was N600bn, according to government’s 2017-2019 Medium Term Expenditure Framework. In addition, a loan of $1bn was obtained from African Development Bank (AfDB) to bridge the 2016 budget deficit.
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Also, the Debt Management Office (DMO) 2017 Annual Report revealed that the Federal Government incurred a total of N15.02 trillion in Treasury Bills’ debt between 2013 and 2017. In addition, government’s outstanding Treasury bills’ debt from 2013-2015, stood at N2.58 trillion, N2.82 trillion and N2.77 trillion respectively. Altogether, the DMO report stated that “the stock of FGN’s domestic debt has been on the increase in the past five years from N7.118 trillion in 2013 to N12.589 trillion in 2017.” This development, it explained, was largely due to the use of domestic debt to fund rising budget deficit and refinancing of maturing domestic debt obligations.
However, the Federal Government Bonds remain the dominant instrument for borrowing from the domestic market. This has been acknowledged by the Minister of Finance, Mrs. Kemi
Adeosun, but the flipside is that such loans have crowded out the private sector investment in the economy, against the advise of the World Bank, the IMF and other financial experts that such massive debt could have adverse implications if the loans are not invested in productive capital projects that will stimulate the economy.
Though we maintain that there is nothing wrong with borrowing, the problem has always been lack of prudent management of such loans. Therefore, it makes economic sense to heed the advice of the World Bank on borrowing. With the national debt on the increase and foreign reserve slightly on the dip and declining foreign direct investment, borrowing should be well streamlined, while projects earmarked for such loans should be prioritised. They must be projects that have profound socio-economic benefits to the welfare of the citizens and development of the country.
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We advise the government to be circumspect when borrowing and adhere strictly to the relevant provisions of the Fiscal Responsibility Act, especially sections 44, 45 and 46. No loan must exceed the limits set out in section 44 of the Act, and the proceeds of such borrowing shall solely be applied to long-term expenditures. Let there be accountability in such transactions.
The National Assembly should give approval to all loans by the Federal Government. Though the Fiscal Responsibility Act states that non-compliance with the provision of section 42 “makes the action taken an offence,” this provision has often been observed in the breach by the Federal Government.
In all, let government channel the bulk of the loans into areas that will stimulate the economy. With the 2019 general election six months away, discretionary borrowing has become necessary. Also, with rising debt of over N21 trillion, government should reduce borrowing and tap private investments.