Substantial evidence from developed economies of the world shows that borrowing is not a sin, but the reality is in servicing and ultimately repaying it.
Nigeria has had its bitter experiences from Structural Adjustment Programme (SAP) and those lessons usually elicit criticisms and/or reactions each time the government contemplates borrowing from either the International Monetary Fund (IMF) or other financial institutions.
It was revealed, recently, that about N2.2 trillion has been recovered through the Treasury Single Account (TSA) and based on that, Nigerians have logically concluded that the government needs to borrow only N1.3 trillion to take care of the 2016 budget deficit.
Acknowledging the succour which TSA might have brought over uncertainties surrounding the budget implementation, the Minister of Finance, Mrs. Kemi Adeosun, at a workshop on TSA for
accountants-general of the states in Abuja, said the over N2.2 trillion, which has so far been recovered from government agencies through the TSA, would assist in reducing the volume of borrowing.
She said: “The global economic challenges, which are affecting our nation, demand optimum efficiency in the management of public funds. These objectives require an overhaul of the financial management approaches adopted to meet financial obligations on time and ensure that cost effective financial support is provided to public institutions.”
With the move by the Federal Government to borrow $3.5 billion to fund the this year’s budget deficit of N3 trillion, Nigeria’s debt profile is set to rise astronomically, causing fears that the country would soon return to the status of a debtor nation.
No doubt, Nigeria needs to be cautious as official statistics, released by the Debt Management Office (DMO), last month, have shown that the total external debts of both tiers of government rose from
$9.71 billion as at December 31, 2014 to $10.71 billion as at December 31, 2015. This represents an increase of $1 billion or growth rate of 10.37 per cent within the one year period. The domestic debt of the Federal Government, which is the biggest component of the debt burden, rose from N7.9 trillion as at December 31, 2014 to N8.84 trillion as at December 31, 2015. This shows that the domestic debt of the Federal Government rose by 11.8 per cent or N932.97 billion within the one
Also, in search of resources for rehabilitation and reconstruction of the North-eastern part of the country following its devastation occasioned the activities of the Boko Haram insurgents; the government had earlier secured a $2.1 billion loan from the World Bank.
But informed observers of the economy are divided in their opinions over the implications of the government’s action especially if it succeeds in borrowing the $3.5 billion from the World Bank and African Development Bank (AfDB) as the debt profile will rise by about 50 per cent before the end of the first quarter of 2016.
Fitch Ratings, one of the world’s leading economy rating agencies, observed that the emerging fiscal and monetary policy responses to the oil price crash may lead to a further downgrade of its Nigeria rating, thereby increasing the country’s risks for all forms of capital inflows including borrowings.
It warned that key provisions of the 2016 budget, particularly deficit
spending and monetary policy positions on foreign exchange management,
could present downside risks to Nigeria’s sovereign credit profile.
Analysts, however, acknowledged that though there are mitigating factors, increased borrowing and higher interest payments would add more pressure to the fiscal burdens of Nigeria. Without prejudice to whatever measures being put in place for the needed borrowings, government should focus efforts on tidying up the loose ends of its fiscal and monetary policies. This will go a long way in optimising the loan conditions to her benefit.
An economic analyst, Temitope Oshikoya, said the support credits which would be sourced from the African Development Bank and the World Bank were a welcome development, “especially if such credits are also tied to specific infrastructure projects, adding: “The borrowing costs of
about 5-6 per cent are also going to be lower than yields on Euro-bonds of 8.5 per cent and domestic borrowing of 10-12 per cent. It could also be a blend of concessional funding with long-term
Analysts, who are of the view that government’s decision to borrow is apt, argued that borrowing from development institutions like the World Bank is cheaper than from conventional debt instruments like Eurobond, and that repayment can be spread over a long period of time.
They added that government could explore every means possible to fund the 2016 budget in order to achieve its growth and development targets for the economy.
Nigerians also expect much from the Federal Inland Revenue Service (FIRS) to finance the 2016 budget. The FIRS has shown a strong track record of meeting and surpassing its targets in the recent past.
Available data show that aside from 2006 and 2015, when it achieved 88.1 per cent and 61.1 per cent of its targeted revenue, respectively, it has comfortably exceeded its target since 2010 by an average of 115.0 per cent between 2010 and 2015. More so, in 2008 and 2009, when the country last witnessed significant revenue pressures due to a slump in oil prices, the Agency surpassed its budget by 130.7 per cent and 115.1 per cent, respectively.
The CBN governor, Mr. Godwin Emefiele, has assured Nigerians of a better tax revenue performance in the days ahead as he projects that the stamp duties recently re-introduced on banking transactions will bring in additional N66.1billion into the government’s purse in the current fiscal year.
Observers also applaud such development at widening the tax net as well strengthening the implementation of relevant extant tax laws to enhance efficient tax collection.
Stakeholders have also urged Nigerians to be more resilient and understanding in these tough economic times. They opined that citizens must understand that tough times require tough measures as the enforcement of taxes is necessary. Like it has been said at many forums, managing Nigeria through the current crisis is not the responsibility of the government alone; the citizens have to contribute to the economic survival. As a result of the prolonged oil price decline, economic stability is being threatened.
To survive the current crisis will require very painful decisions to be made and implemented.