Although public borrowing and public debt are inevitable aspects of modern-day market-based economies, the challenge is to ensure value-for-money and debt sustainability, Abraham Nwankwo, director-general, Debt Management Office (DMO), Nigeria, has said.
According to him, the current policy thrust for Nigeria is to slow down public borrowing, particularly from the domestic source, while leaving more borrowing space for the private sector.
Domestic borrowing as of 2013 stood at N577 billion from N744 billion in 2012 and N852 billion in 2011.
Share of recurrent expenditure to total expenditure was 74.43 percent in 2011, 71.5 percent in 2012 and 67.5 percent in 2013. Ratio of fiscal deficit to GDP was 2.96 percent in 2011, 2.85 percent in 2012 and 1.85 percent in 2013.
Looking at the reasons for rise in Nigeria’s public debt, Nwankwo, told his audience at ‘The Citizen Newspaper’s Maiden Annual Lecture’ in Lagos State, recently that after the exit from the Paris and London Club debts, government still needed to borrow to fund the resource gap which could not be met through increased taxes and other sources of revenue. Accordingly, fiscal deficits have been a recurring feature of the budgeting process since the exit from the Paris and London clubs debts based on the need to fund developmental projects and maintain government’s bureaucracy.
The succession of large budget deficits in the recent past has resulted in the rapid growth of public debt.
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Nwankwo noted that the remarkable increase in fiscal deficits from 2009 was mainly due to rising government expenditure for all arms of government, particularly increases in public wage bills of about 53.7 percent in 2010 for all categories of federal employees, including political appointees and elected officials, overheads and other recurrent expenditures.
The biggest budget item in the recurrent expenditure is the personnel cost, which rose from N850 billion in 2008 to N1.3 trillion in 2010 and to about N1.4 trillion in 2011.
There has also been pressure to expand the size of the budget beyond what could be considered as prudent – from 2005 to 2012, the initial total size of the budget for each of the seven years has been amended to higher figures at the stage of appropriation.
The top-up on the budget proposal at the appropriation stage ranges from N42.83 billion in 2007 to N347.59 billion in 2010.
In addition to general budget support, proceeds of domestic bond issuance were also used to fund special government stimulus spending initiatives between 2008 and 2010, which include: the N200 billion commercial agriculture programme, whereby the funds raised by the DMO were made available to the CBN for lending to agriculture enterprises through the commercial banks; the Cotton, Textile and Garments revitalisation programme, part funding to the tune of N100 billion with FGN bond proceeds; the purchase of locomotives for the revitalisation of rail transportation; and, the provision of seed money for the development of infrastructure in new districts in the Federal Capital Territory.
Following the debt exit, topmost in the DMO’s priorities was the need to articulate a domestic debt management strategy for the government, which include:
Using a market-based approach to raise finance in the domestic debt market, to meet government’s borrowing needs at minimal cost and prudent degree of risks;
Funding the nation’s budget deficit in a non-inflationary manner, without recourse to monetary financing; Creating a market for long-term debt instruments, which the private sector can build upon to raise funds for the funding of long-term investment in real sector; and, Develop the domestic bond market as part of the overall programme for the development of the financial sector.
