The federal government will not borrow money from the Central Bank of Nigeria (CBN) unlawfully, Atiku Bagudu, minister of budget and economic planning, has said.
Bagudu said the government has cut back on borrowing and debt service as part of measures to boost the confidence of private investors in the economy.
BusinessDay had reported last week that Nigeria’s public debt profile will show over eightfold increase in the last 10 years when the central bank loan that President Bola Tinubu has been given the green light to securitise is included in the official data.
The federal government’s N28.8 trillion budget for this year has a deficit of N9.8 trillion, which will be financed mainly by new borrowings.
“We are not going to crowd out the private sector because the first thing the President has directed is that we are no longer going to borrow money unlawfully,” Bagudu told journalists in Lagos on Friday. “So the central bank is not going to print money for the government any more.”
He said should the government borrow from the central bank, it would be “within what the law allows”.
The law allows the central bank to lend to the federal government through Ways and Means Advances, a loan facility used to finance the government in periods of temporary budget shortfalls subject to limits imposed by law. The government can borrow up to five percent of its actual revenue for the previous year from the CBN.
“The law allows and anticipates that every government around the world may need to go to the central bank… So it’s not an usual thing,” Bagudu said.
He said the government would issue bonds to raise funds. “It even provides opportunities for some private investors who have money to buy government bonds.”
He said the government needs to borrow to enable it provide more infrastructure and security in the country.
“Some things cannot wait. We have many children; we want them to have education. We have a security challenge; we need more boots on the ground. So as much as you will want to cut back on borrowings, there is an irreducible minimum that you need to do,” he said.
The minister highlighted the need for the country to ramp up revenue generation.
“When you are collecting about 10 percent of your GDP as revenue, you don’t need analysts to tell you that you have a revenue problem. Where your revenue to GDP ratio is about the second or third lowest in the world, again you don’t need an analyst to tell you there is a problem. And fixing it does even mean increasing tax rates. But it may mean efficiency in collection,” he said.
There are countries in the world that collect 50 percent of their GDP as revenue, according to the minister.
Nigeria has seen its public debt grow steadily to levels that have left many worried as government revenues remain low. Its debt-to-GDP ratio was increased from 25 percent to 40 percent in 2021.
Debt service costs gobbled up 96.3 percent of government revenue in 2022, up from 83.2 percent in the previous year, according to the World Bank.
As of September 2023, debt service was N5.66 trillion, representing 40 percent of aggregate expenditure and 64 percent of revenue, Bagudu said while presenting the highlights of the 2024 budget proposal.