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DMO raises concern over FG’s debt service-to-revenue

The Debt Management Office (DMO) has said it is concerned about the Federal Government’s debt service-to-revenue ratio.

The federal government’s projected deficit for the 2023 budget stands at N11.30 trillion, 54 percent higher than the previous budget’s estimated deficit.

Patience Oniha, director general of DMO, adduced the reasons for the high debt profile when she appeared before the House of Representatives Committee on Finance for interaction on Medium Term Expenditure Framework and Fiscal Strategy Paper (MTEF/FSP) 2023-2025 on Thursday.

Oniha disclosed that Nigeria’s indebtedness reached N41.6 trillion as at March this year, saying the country has been running on budget deficit for many years which affected its revenue profile.

She said unless the issues of personnel, overhead and capital expenditure were properly addressed in the budget, borrowing would continue.

She said: “As you know, we publish the debt numbers quarterly, which is why there are a lot of discussions around it. But let me just give some numbers. As at December 2020, the debt stock of Nigeria and that includes the federal, state governments and the federal capital territory was N32.92 trillion.

“By December 2021, it was N39.556 trillion. As at March of this year, it was N41.6 trillion. On the average, (federal government) it is about 85 percent of the total. Technically, the bulk of it is the federal government.

“Speaking specifically to the question, it is a genuine concern that Nigerians ask and you as the stakeholders in Nigeria with responsibility for borrowing ask. Debt has grown and that has come really from the annual budget. There are three levels where those borrowings have increased. We have been running a deficit budget for many, many years.

“So, each time you approve a budget with a deficit, by the time we raise that money – because when you approve, it is giving us a mandate, authority to borrow, it will reflect in the debt stock; so debt stock will increase. Also remember that states are also borrowing. So we add their own. They also have laws governing their borrowings.

“The second leg to that really, as debt stock increases, so does debt service. And so, the clear message is go through the budget; we have been having a deficit budget for many years and have been borrowing significantly.

“The challenge is: we have been borrowing because of shortfalls. So, the other thing to do is let’s look at our expenditure profile: what can we do to reduce it, because you are asking me what is the remedy? It is from the budget. There is revenue, there is expenditure listed in various categories, personnel, overhead and capital. So, those are what bring out the deficit we borrow for. It is those things that should be interrogated in addition to increasing revenue significantly.”

According to Oniha, what DMO has been saying since 2020, when the MTEF for 2021 to 2023 was being prepared, is to begin to look at revenues because as debt is growing, debt service is increasing.

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She said: “So, the language we used was for debt to be sustainable in the medium term; sustainable means you can service your debt without difficulty, without it consuming all your revenues because you have very little for other projects. You must look at revenues very closely and I think the discussions you have had with Customs is one part of it. There are many other revenue-generating agencies. So, we must increasingly begin to look at our revenue for funding our activities as opposed to deficit.

“We talk about the N11 trillion deficit and borrowing for 2023, how much is the revenue there? That’s one. When we looked at the first tranche that was N10 trillion for a full year of subsidy and N9 trillion for subsidy next year, the size of the borrowing was 62 percent of the budget. That’s high.

“The responsibilities, I think, are on both sides. Query the various expenditure lines and see what it is we can handle. So, if the deficit is lower, the borrowing will be lower and that’s how to grow at a slower pace.

“I have just said what the sources of those debts are and we need to focus on revenue. We did say this in 2020 at a public hearing in the National Assembly. If you listened to us, we have been talking about it a lot.

“Revenue can’t grow at a low rate of 2 percent to 3 percent. It has to grow significantly to be able to ensure that we can service our debt and still have for capital projects and for other overheads and important activities. So that is what it is.

“So, are we concerned about debt service to revenue? Of course, we are but we always say that when you incur debt that is approved, you have to service it. It is not a grant. So, we have to look at revenues.”

Responding to a question by a member of the committee, Stanley Olajide, of the stage an alarm can be raised of how unsafe it is to continue borrowing, Oniha said the country needed to revisit its budgetary system.

Another member, Taiwo Oluga, raised concern about the frequency of the borrowing without concrete efforts to boost production, fearing that the previous borrowings may not have been properly utilised.

Responding to the question, Oniha said: “I think it is a valid question. I think we should be fair to ourselves as people serving Nigeria; to say that we can’t see what we use the borrowing for might not be exactly true. Look at the airports. How many do you have? You have a new international airport in Abuja; you have the modernisation in Kano, even Enugu that is now international. Those came from borrowings.

“The rail lines have also come from borrowings. So, it is not that it is a zero performance. Those things generate revenue in some other countries.”

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