Government borrowing to finance capital projects an incentive for growth – DMO

Debt Management Office (DMO) has restated the Federal Government’s commitment that all money to be borrowed to finance the 2016 budget will be dedicated to fund capital projects, as the move is an incentive for economic growth and future generation.

Abraham Nwankwo, director-general, DMO, who stated this on Tuesday at a day workshop by DMO on “Public Debt and the challenge of financing Nigeria’s economic recovery” organised for Capital Market Correspondents Association of Nigeria (CAMCAN) in Lagos, also noted that borrowing for capital project was a major incentive for the nation and its generation.

Nigeria targets to borrow about N1.884 trillion to finance the 2016 budget spend – N900 billion external borrowing and N984 billion domestic borrowing – to be use to fund capital projects that will support the growth of productive capacity.

In line with the role of DMO in implementation of 2016 budget, the debt office noted its belief in “logic of mix,” which is to rebalance Total Public Debt Stock in favour of less costly external funds.

World Bank, African Development Bank (AfDB), China EXIM bank, and international capital markets are the possible sources for which DMO targets to raise the N900 billion external debts, as indicated the budget 2016.

Nigeria’s total debt stock shows 84 percent domestic and 16 percent external debt.

Nigeria Debt-to-GDP Ratio as of December 31, 2015, stood at 13.02 percent compared with its peer group ratio of 56 percent. The critical issue is the ability to service the debt, which is dependent on the Public Revenue – to – GDP ratio.

Currently, Nigeria’s Comparative Tax Revenue – to – GDP Ratio is less than 7 percent; its Peer Group (18%); and industrialised countries are about 27 percent, Nwankwo said.

“The surest solution to debt sustainability is a diversified economy which minimizes the risks associated with borrowing. The public debt management has a crucial role to play in the drive for needed economic change.

“The message is that as far as DMO is concerned, we will do everything possible to support government in the drive for economic change,” he said, adding that if Nigeria borrows to diversify economy, which increases exports and associated FX earnings, it will affect possibility on exchange rate.

“Therefore, debt sustainability and overall economic sustainability can be significantly influenced by: individuals and corporates paying various taxes fully; and sustained progress in the ongoing initiatives by the Federal Inland Revenue Service (FIRS),” he said.

“The DMO is committed to making sure that we raise money to fund the 2016 budget deficit from appropriate sources and through appropriate mix during the fiscal year to make sure that capital projects are funded,” he said.

Nwankwo also stressed that the Nigerian debt level is highly sustainable, noting that the nation still has a lot of potential, which the administration is currently working to harness for effective growth of our national economy.

He said the debt sustainability and overall economic sustainability can be significantly influence by individuals and corporates bodies paying taxes fully.

Speaking on the economic recession caused mainly by unfavourable structural change in the fall of oil prices globally, he said the Nigerian government is addressing the challenge through diversified, self-sustaining growth in agriculture and agro processing, solid minerals, manufacturing and ICT.

According to him, in the medium to long term, debt sustainability in Nigeria hinges on the overall sustainability of the economic, and the overall economic sustainability hinges on diversifying the economy in a sustainable manner.

“That is what the government is doing in agriculture,   solid minerals, ICT and manufacturing. And to do that we need a strong infrastructure base and that is why government is spending what is borrowing on capital projects,” Nwankwo said.