Nigeria’s finance minister, Zainab Ahmed, said on Thursday that the government deliberately grew the country’s debt profile, which has almost doubled from N12.2 trillion to N23 trillion in order to foster a more stronger economy which is yet to be seen though.
While Nigeria still struggles with a very weak economy, high unemployment and poverty levels after a difficult recession, debt service to the country’s revenue ballooned to 60 percent by 2018 from 27 percent in 2014, according to numbers from Bloomberg and now raises concerns.
“The debt increase from N12.2 trillion to N23.0 trillion is by design,” Ahmed told journalists in Abuja on Thursday while addressing her possible last press conference on the state of the economy before the cabinet winds down anytime from now.
Ahmed argued that the Federal Government had “designed the Economic Recovery and Growth Plan (ERGP) to reflate the economy, to take us out of recession. When we came on board and we made an assessment, it was clear that our country was going into recession. When we did a research on the best way to reverse the recession was to reflate the economy and that means putting resources in the economy so that consumption will increase.”
“Based on government’s findings, it designed the ERGP to borrow in the first, second and third years and in the fourth year the borrowing was supposed to start reducing. That is exactly what we have done.”
In an attempt to defend the heightened borrowing, she said government “made sure that we borrowed to finance capital projects. At the same time we went into recession there were other countries similar to Nigeria that went into recession. Some of them are still not out of recession. But the consequence of course is the increase in debt and that is why the ministry of finance and all its agencies are working to make sure that we increase revenues.”
She further argued that “at 19.09% Debt to GDP ratio we still are the lowest comparative to countries like Brazil, South Africa that all have an average of 56% debt to GDP ratio.
“If you look at our budget the debt service to GDP ratio is 30% but because revenues underperformed it went as high as 50% to 55% and in some months up to 60%. So if our revenues perform optimally we are in a good place as far as revenues are concerned.”
“I am sure you know that we have issued promissory notes to states that constructed roads on behalf of the federal government, we have issued promissory notes to marketers and we are currently preparing promissory notes for businesses,” she said.
However, government is addressing “the issue of the high debt service burden by a combination of substitution strategies which include refinancing our shorter-term, higher-cost debts to longer-term, lower- cost debt,” the minister said.
According to her, “The emphasis on increasing and diversifying non-oil revenues from taxes, import duties is already yielding results, the Ministry in close collaboration with the Debt Management Office (DMO) is working on moving from high-cost short-term borrowings to long-term, low-cost borrowings.”
She also admitted that the government was still struggling with the critical issue of revenues. To address this challenge, she said since revenue growth is a strategic priority for the Ministry of Finance, the Strategic Revenue Growth Initiative (SRGI), a key aspect of government strategy to improve Non-oil revenue through fiscal buffers, and ultimately improve our Revenue to Debt Service Ratio and to improve the ratio of Non-oil revenue to Non-oil GDP was initiated.
Also at the press meeting, Ahmed announced the federal government’s plans to commence the disbursement of another, and in fact the N649.434 billion (about $2,127bn) last tranche of the Paris Club debt refunds to State governments sometime soon.
Ahmed, who was holding her final press conference on the state of the economy in Abuja before the cabinet winds down, also disclosed that “the total sum of N649.434 billion was verified by the Ministry as the outstanding balance to be refunded to the State Governments.”
She also revealed that the payments made by the Central Bank of Nigeria as at March 2019, now stands at N691.560 billion. “The increase in CBN payments partly arose from exchange rate differential at the point of payment” she said.
The minister could not clarify the status of the states with regards to the Paris Club disbursements but told journalists that, “some States still have outstanding balances, which will be refunded, in due course.”
This comes as the three tiers of government shared total of N4.8 trillion between September 2018 and April 2019 from the Federation Accounts, the sum of N784.7 billion realized from value added tax (VAT) for the same period was also shared.
She also spoke on the Strategic Revenue Growth Initiative (SRGI), part of which is the ongoing VAT expansion programme designed to ensure that “we improve collection efficiency whilst ensuring there is automation of VAT collection at source in some key sectors.”
According to her, the Federal Inland Revenue Service (FIRS) has already commenced VAT automation programme for Banks and other large industries, “the target at improving the VAT collection, which was N148.92 billion as against the budgeted figure of N207.51 billion in 2018. Such digitalization and transformation initiatives are an integral part of these revenue collection efforts” she said.
“Independent revenues are a critical part of the revenue mix of this country. We have not seen optimal performance yet of independent revenue, but I must say that there has been some improvements. The independent revenue that was generated in 2018 was N454.34billion, this is against a budgeted figure of N847.95 billion, representing 54% performance,” she added.
With regards to funding the Nigeria Sovereign Investment Authority (NSIA) that manages the nation’s Sovereign Wealth Fund (SWF), the minister stated that they hope “to work with the National Economic Council chaired by the Vice President, with all the states as members, to be able to save on a regular routine basis into the NSIA. Right now what is provided is the small savings into the stabilization fund. It takes a lot of time, there is N5.9 billion that has accrued that we will transfer to the NSIA but we want the savings to be more aggressive.”
She recalled that there is a provision in the NSIA Act that requires that savings come from the Excess Crude Account (ECA) “but we have not been able to attain that but the ministry of finance is working to address that but unfortunately it’s not something that the federal government alone can decide because the ECA is an account for the whole federation so we have to get the understanding and concurrence of the states to be able to start that routine savings to the NSIA.”
She also clarified that the “financial implications on the recently approved minimum wage has been worked out by the presidential committee that was set up and they have submitted their report to the president and the president has directed the report to us.
She said they have looked at the report and we are working on how to finance the new minimum wage.
She added that “apart from the increase of the minimum wage from N18,000 to N30,000 there is also consequential adjustment that we have to negotiate with the labour unions.
“The total financial implications will be determined after negotiations,” the minister explained, adding that the negotiation will then determine what every other staff that is above the minimum wage will get. “It could be a flat amount or a progression.”
“The other aspect that should be clear is that there is an increase for the NYSC as well because NYSC by its Act is designed that they earn the minimum wage. So NYSC allowance also has to increase to N30,000. So I cannot give you projections right now because the negotiations are not yet concluded.”
Onyinye Nwachukwu, Abuja
