The growing profile of Nigeria’s debt has become a source of concern, given the Federal Government’s penchant to add to its stock. The latest addition of N473 billion, has once again opened the floodgate of the spiral rise, with its attendant consequences, reports SIMEON EBULU, Group Business Editor
FEAR may well be the word to describe the state of Nigeria’s debt profile, hovering at N11.24 trillion as at December 31, 2014 and still rising.
The level which the nation’s debt overhang has attained is like a death-knell. Yet it keeps climbing.
The revelation by the Minister of Finance and Coordinating Minister for the Economy, Dr. Ngozi Okonjo-Nweala, that the Federal Government has borrowed N473 billion in the first quarter of this year to execute the 2015 National Budget, is another clear case of one-more borrowing too many, so to speak.
Dr. Okonjo-Iweala said yesterday that of the N882 billon budgetary provision for borrowing, the Federal Government had already accessed N473 billion to fund Recurrent Expenditure, such as salaries and other overheads. The obvious reason for this development, she stressed, is the 50 per cent decline in the spot market of crude prices .which has inadvertently resulted in a cash crunch for the country.
To remain focused on keeping the economy stable and the government running, the government has embarked on “front-loaded borrowing programme to manage the cash crunch in the economy,” she said.
Nigeria’s borrowing profile from independence, is a study in itself. Going by the data available to The Nation, there appears to be more questions than answers when it comes to x-raying how the nation arrived at this point in time, where nothing gets done unless it is powered by external revenue sources, rather than internally generated funds, or revenues earned from known government sources, such as taxes, oil and non-oil exports.
The hint that nigeria would go a borrowing again, was given by Mrs. Okonjo-Iweala in far- away America in April during the last International Monetary Fund (IMF)/World Bank Group Spring meetings in Washington DC, United States (U.S.).
On prospects of further borrowing, she said: “Government is considering and in fact taking steps to actualise this with the World Bank Group and the African Development Bank (AfDB).” The other option of tapping the capital markets would be left for the incoming government. She said the government decided to look outside the nation’s shores for the next round of borrowing because it has reached, and almost exceeded taking the ceiling for local debts.
Mrs. Okonjo-Iweala said: “Our borrowing strategy is very prudent, and what we will do is that we have a lot of domestic borrowing than we want, so we are trying to switch and have a little more of external borrowing, but by drawing heavily on the multilateral institutions. So we will be going to the World Bank and the AfDB, and we will also look into the markets. But for the multilaterals, we’ve already embarked on discussions.”
Her disclosure that N473 billion has been borrowed is a confirmation that the proposal has eventually been actualised.
In its 2014 Debt Sustainability Analysis (DSA), the nation also adopted a subsisting debt management strategy as captured in the approved Nigeria’s Medium-Term Debt Management Strategy (MTDS), for 2012-2015, which seeks to achieve an optimal mix in the debt portfolio of 60:40 for domestic and external debts respectively as against the current mix of 83:17 through a gradual substitution of relatively more expensive domestic borrowing with cheaper external financing. Thus, the 2014 DSA has already incorporated government’s policy objective of reducing the overall cost of government borrowing at an acceptable level of risks. This may have informed the minister’s statement of government’s preference for approaching multilateral agencies.
The objective of the 2014 DSA is to assess the country’s capacity to finance its projects/programmes and service its debt obligations, without undue large adjustments that may compromise its macroeconomic stability, overall growth and development.
The government’s avowed confidence that it can continue to borrow on the argument that it falls within a safe threshold, is punctured when examined under an uncertain economic regime, as being faced by nigeria. Even the government admitted this by its own record. It underlined the risks inherent on its path.
“The pessimistic scenario ( where Nigeria is presently), assumes a reduction in the growth of the Gross Domestic Product (GDP), increase in the rate of inflation, decline in revenue accruing to theFederal Government as a result of a fall in crude oil prices, deterioration in fiscal deficit and current balance, amongst others. Unlike in the previous years, which made pessimistic scenario revenue-specific, this years DSA considered deterioration in a broad range of macroeconomic indicators and variables that could impact negatively on the debt portfolio,” the sustainability analysis annual report said.