To cover revenue gaps and finance infrastructure, the majority of governments, multilateral organisations, and the private sector turn to borrowing.
Therefore, it makes sense that the federal government borrows money to cover budget deficits, fund particular initiatives, and refinance debt obligations that are about to mature.
However, stakeholders have recently discussed and expressed alarm over Nigeria’s rising debt profile.
In fact, the public debt of the nation has come under criticism due to its growth rate, debt service to revenue ratio, and use.
For instance, as of June 30, 2022, the total debt stock, which was N7.50 trillion in 2012, was N42.80 trillion.
As a result, the Debt Management Office (DMO) has recently been in the news after federal MPs accused it of borrowing without limits.
But one of the main reasons Nigeria’s debt keeps growing is that it doesn’t have the money it needs to carry out its budget because its income keeps going down.
Data from the DMO as of September 30 showed that as a result of borrowings by the federal and state governments, Nigeria’s overall debt stock had increased to N44.06 trillion from N42.80 trillion in June.
According to the DMO, the total domestic and foreign debts of the federal government, all state governments, and the federal capital territory were included in the calculation.
According to a breakdown of that number, the overall stock of domestic debt during that time was N26.92 trillion, while the total stock of overseas debt was N17.15 trillion.
The DMO attributed the rise in debt to “primarily new borrowings by the Federal Government to part-finance the deficit in the 2022 Appropriation Act, as well as new borrowings by sub-nationals.”
However, the Director-General of DMO, Ms. Patience Oniha, underlined the necessity of running an effective tax administration for Nigeria to address its debt and revenue difficulties when addressing the Capital Market Correspondents Association of Nigeria (CAMCAN) 2022 workshop recently.
Oniha stated during her speech on the topic of “Nigeria’s Public Debt: Some Considerations” that effective tax management must ensure increased compliance with remittances and forego all sorts of evasion.
She said that the problem with getting money in was still one of the Federal Government’s most important policy concerns because it made it hard for the country to pay back its debt.
Oniha noticed that the outlook for the domestic and international markets was already getting worse because interest rates were going up.
She emphasised the urgent need for the nation to limit its fresh borrowing and ensure that the public debt was manageable by broadening its tax base and streamlining its spending.
As of June, Nigeria’s overall public debt as a percentage of GDP was 23.06 percent. This was higher than the World Bank/IMF’s suggested limit of 55 percent for countries in Nigeria’s peer group and 70 percent for ECOWAS countries, but Oniha said it was still below Nigeria’s self-imposed limit of 40 percent.
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She said that the country needed to take action right away to increase its income and make the public debt more manageable because the ratio of debt service to revenue was too high.
“The stock of Nigeria’s national debt has increased steadily over the previous few decades and even more quickly in recent years.” As a result, debt service expenses have increased.
“Over the years, Nigeria’s budget deficits have been caused by the country’s poor base of revenues and dependency on crude oil.” The outcomes of efforts to increase non-oil revenue are encouraging.
“Dependence on borrowing and a small revenue base are currently endangering the sustainability of debt.” Nigeria’s debt service to revenue ratio would have been low with a low debt to GDP ratio if revenue was strong, the expert claimed.
She says that, unlike Nigeria, other countries have put taxes at the top of their list of important ways for the government to get money.
She said that borrowings must be connected to projects that would produce comparable revenues to the service loans used to fund the projects, in addition to taxes as a source of income production.
Oniha suggested that physical assets like empty or underused real estate could be fixed up to make money.
“Urgent steps must be taken to reduce the amount of new borrowing and guarantee that the public debt is manageable, including accelerating revenue growth and selling off government assets.”
According to the forecast, both domestic and global markets are becoming more competitive, and interest rates are rising. As a result, she said, revenue from oil and non-oil sources should take precedence over borrowing.
Prof. Uche Uwaleke, who is the head of the Association of Capital Market Academics of Nigeria (ACMAN), agreed with her assessment. He said that the country’s huge debt burden will only get worse if government revenues don’t increase dramatically over the next year.
Uwaleke told the government to take advantage of the low price of crude oil by fighting oil theft head-on and increasing production to reach OPEC’s daily quota of about 1.8 million barrels.
“The implementation of the government’s strategic revenue growth plans will significantly increase non-oil revenue.”
“This entails increasing the effectiveness of tax collection by organisations like the Federal Inland Revenue Service (FIRS) and Customs.”
In light of the recent controversy over the unaccounted-for earnings of stamp duty on electronic transfers, he went on to say, “It also means taxing digital transactions properly and keeping accurate records of all earnings.”
Uwaleke says that the Federal Government should use technology to make sure that the money that money-making MDAs collect is properly tracked and sent to the government’s coffers.
These organisations need to be given reasonable goals, and the CEOs of those that can’t achieve them without providing adequate justification should be replaced.
Long-term, Uwaleke stated, “greater focus should be placed on diversifying revenue sources, including privatisation of specific government firms and exports of raw materials and finished goods other than oil and gas.”
The Chief Operating Officer of InvestData Ltd., Mr. Ambrose Omordion, stated that Nigerian political and economic leaders should learn from the example of Ghana.
“There is a proverb that states that intelligent people learn from the errors or failings of others. Leaders and economic managers in Nigeria should learn from what is happening in Ghana.
“Despite Ghana’s current predicament, its borrowing has shown economic growth and capacity prior to this awful position.”
“Nigeria’s economy has shrunk as a result of massive borrowing rather than expanding as a result of high debt payment costs, which has a negative impact on capital projects and a business environment that would otherwise foster the nation’s anticipated economic growth and advancement.”
“To reverse this borrowing trend, the government should look inward and begin with a full and solid public-private partnership, selling off abandoned assets, reducing high rates of taxation while widening the tax net, driving economic diversification, and providing security to attract foreign and local investments,” Omordion said.
Also, he urged all levels of government to lower the high costs of running the country and change the current system to make real economic gains in 2023 and beyond.
According to the aforementioned comments, the public debt stock of the country would keep rising if administrations at all levels do not alter their narratives about how to increase the country’s income base even as it gears up for the general elections of 2023.
Whatever candidate wins the presidency in 2023, their top priority should be finding ways to boost revenue collection and lower borrowing, especially for budget deficits.
A stitch in time saves nine, thus Nigeria cannot keep doing things the same way and expect a different outcome. (NAN)
