FG says it won’t be lured into raising borrowing appetite

Nigerian government will not be lured into raising its borrowing appetite even when the rebased Gross Domestic Product (GDP) has provided a larger room for additional debt, the Debt Management Office (DMO) has said.

The new estimated $510 billion economic size had seen Nigeria’s debt to GDP ratio drop significantly from 22 percent to 12 percent on the rebased status, giving the country enough room to borrow more.

“The space to borrow is not bigger even though the economy is now larger,” Abraham Nwanwko, director general, DMO, tells BusinessDay in an exclusive interview in Abuja.

He also signals that the government is being cautious in introducing set of new debt instruments and initiatives -like the inflation-linked bonds and global depository notes- and that uncertainties in theglobal market was being watched keenly to determine the appropriate time for such launch.
Nwankwo explains that even though the nation’s debt to GDP ratio had dropped significantly, there was still this huge challenge of finding enough money to service even the incurred debt because of low tax income.

“Our debt to GDP ratio has dropped from 22 percent to 12 percent because of the rebasing; but in real terms it has not changed anything because our ability to service our debt has not improved and that is because of the weak relationship between GDP and tax revenue,” he says.
“Conventionally, governments all over the world depend on taxation as a major source of revenue. We cannot say that we have more space to borrow because our new GDP shows that revenue from tax in particular relative to your GDP is low. This means that we should rather be more cautious about public borrowing,” the debt manager adds.

He further explains that the fact that the economy is now bigger does not also mean that the government has grown bigger and better in terms of resources but mainly because the private sector has basically driven the economic expansion seen.

He says that the expectation is that the private sector should rather take advantage of the new configuration of the economy.
“We, therefore, believe that the private sector has more capacity to borrow and drive the economy,” he adds.

Nwankwo attributes the low tax income to a number of reasons, including poor administration, unwillingness of most of the citizens to pay taxes except a few in the public sector and other formal employments who pay as they earn.

He raised the concern that those who have the opportunity to pay voluntarily hardly do and even many of the corporates do not pay fully.
Government had set ambitious prudent borrowing rules which includes that debt must not exceed 25 percent of GDP and, according to Nwankwo, Nigeria’s debt is still very sustainable while the prudent status must be adhered to.

“We understand the nature of the economy, even when the Debt GDP ratio of our peer countries was 66 percent; we said for Nigeria, up to 2015, we will not exceed 25 percent.”