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With the nation’s debt profile estimated to reach about N81.6trillion by the end of the year, the federal government should heed the recent timely warning against further borrowing by the Debt Management Office (DMO). According to the DMO, the total public debt-to-GDP has increased by 37.1 per cent from 23.4 per cent as at September 2022. This is due to the inclusion of an estimated N8.8trillion contained in 2023 debt from the federal government’s Ways and Means Advances of N23trillion from the Central Bank of Nigeria (CBN), and an estimated Promisory Notes Issuance of N2.87trillion. The CBN latest report shows that the nation’s external reserves fell by $2.85billion in the last six months.
Nigeria’s total debt stock was N49trillion as at Q1 2023. In its latest report titled, ‘Annual National Market Access Country Debt Sustainability Analysis’, the DMO warns that further borrowing will worsen the already existing debt burden. It is projected that 73 per cent of revenue to be generated this year will be spent on debt servicing.
Last year, the government spent 96 per cent of the revenue generated on debt services. The projected 73.5 per cent of revenue on debt servicing this year, according to DMO, is very high and unsustainable. It cannot support higher levels of borrowing. No doubt, this is a serious threat to the economy. To attain a sustainable debt-to-revenue ratio will require increasing federal government’s revenue from N10.49trillion projected in the 2023 Appropriation Act to about N15.5trillion. But, this is not feasible.
Apart from the DMO, the Director-General, Budget Office, Mr. Ben Akabueze, also warned that Nigeria’s borrowing from both the domestic and international markets is gradually threatening to exceed the acceptable threshold as a result of low revenue generation. Recently, Moody’s and Fitch, as well as the International Monetary Fund (IMF), cautioned the federal government that resorting to Ways and Means (W&M) poses serious risks to Nigeria’s macroeconomic stability.
These agencies warned that excessive borrowing by the federal government would place a ‘heavy burden’ on the nation’s debt stock, with far-reaching implications on inflation, unemployment and poverty. The latest inflation rate is 22.4 per cent, the highest since 2005. Unfortunately, the Buhari government did not heed the advice. In January, 2023, Moody’s downgraded Nigeria’s sovereign rating to Caa1 from B3.
The federal government expressed ‘surprise’ at the development, but noted that the government had taken actions to resolve issues raised by the rating agency. Between January and February this year, the federal government borrowed N2.13trillion through Bond issuance, retail savings and Treasury Bills. Worries have been raised that at the current rate of borrowing, government runs the risk of exceeding its projected domestic borrowing of N7.04 trillion for 2023 financial year. In January alone, the federal government raised N662.617billion through Bond auction and N277.468billion via Treasury Bills, and N533million through debt issuances that it introduced in 2017. And February, 2023, government raised another N770.56billion through Bond auction, N417billion on Treasury Bills and N1.271billion through Savings Bond. Also, the states’ debts have risen above 200 per cent of their projected revenues for 2023. The debt figures based on the analysis of the DMO consist of domestic and external borrowing. Overall, instead of resorting to borrowing, there is need for federal and state governments to explore other options to raise money without imposing multiple taxes. Most importantly, let the government cut drastically the rising cost of governance. The opulence among government officials while the citizens are facing extreme economic hardship is unacceptable.
The current economic situation calls for strategic revenue growth initiatives aimed at raising revenue. That is one of the ways the government can achieve its six per cent annual economic growth goal. For now, the government is handicapped to borrow more because of low revenue generation and self-imposed debt limit of 40 per cent. Although the government has been advised to sell some key national assets, it should be done with extreme caution and adherence to due process and transparency.
Above all, the government should adhere to the 2020 Revised Borrowing Guidelines. Let the private sector be encouraged to fund some key capital projects. In all, we call for a moratorium on fresh borrowing until key fundamentals of the economy are reset. It is also imperative to diversify the economy. This will curb our reliance on excessive borrowing.
