The budget deficit under President Muhammadu Buhari’s administration would hit record high at N55.3 trillion in eight years, with the passage of N21.83 trillion 2023 budget whose deficit is over N10 trillion, LEADERSHIP Weekend can exclusively reveal,leadership report.
This is just as economists have asked the Nigerian government to heed warnings from the International Monetary Fund and the World Bank over the effects of the country’s rising debt, particularly borrowings from the Central Bank of Nigeria through ways and means, which they say leading to a rise in inflation, eroding the value of the naira and depleting the county’s foreign reserves.
The economists who spoke with LEADERSHIP Weekend said the federal government has pronounced its own unworthy of credit in the international market by borrowing from the CBN, which is nothing but printing money and pumping it into the system.
According to the economists, the country’s borrowing has now hit a brick wall and it has to stop borrowing. The effects, they believe, are now being felt with the country unable to issue bonds in the international market and has overstretched itself in the local market, raising questions on how the close N12trn deficit in the 2023 budget will be financed.
The only other option left for the government is to abandon its penchant for borrowing and increase its revenue profile by taxing businesses and the income of all Nigerians.
An assessment LEADERSHIP Weekend show that every Nigerian would have pay N60,000 in extra taxes to fund the N12trn deficit in the budget.
And by the time Muhammadu Buhari leaves office on May, 29 when the debt management office says the public debt would have reached N77trn, every Nigerian by then would owe N385,000.
The fiscal policies of the Buhari administration have also seen the country’s budget deficit to Gross Domestic Product (GDP) rise to -4.7 per cent, the highest since 1999 when it was -5.4 per cent, according to data on trading Economics.
In 2023, the fiscal deficit, which is the difference between earned revenue and expenditure, is estimated to reach N12.1 trillion as against the actual budget deficit of N2.41 trillion recorded by the Buhari-led government in its first year in government, representing a 402.07 per cent rise in seven years.
The 2016 budget, tagged: “budget of Change’, was the first yearly fiscal appropriation prepared and fully executed by the current administration. The government had borrowed N2.41 trillion in 2016 to fund the N5.36 trillion expenditure.
The 2023 budget as signed by President Buhari is looking at a total spending outlay of N21.83 trillion, a N1.32 trillion over the initial Executive Proposal for a total expenditure of N20.51 trillion.
With N9.73 trillion to be funded with revenue, the government plans to raise N12.1 trillion through fresh borrowings, drawbacks from existing commitments by multilateral/bilateral partners as well as privatisation proceeds.
Meanwhile, the minister of Finance, National planning, Zainab Ahmed had said, the government has no intention of approaching the Eurobond market this year to source for funds.
Presently, Nigeria has a total Eurobond borrowing of about $15 billion spanning different tenures and coupons. According to Ahmed, there are no plans to issue Eurobonds in 2023 unless market conditions improve as bond prices are too high for African countries.
Nigeria had sold $1.25 billion Eurobonds last year, marking its eighth outing on international debt markets, but with unfavourable rates, hence, Ahmed said, Nigeria will focus on concessionary loans from the World Bank, Islamic Development Bank, African Development Bank and others for external loans, she told Reuters in Abuja after a cabinet meeting.
“Our external borrowing sources are very much open at multilateral institutions and our focus is on those loans unless we have no option because loan processes are very long.
“The prices of bonds are too high now in most African countries. No one is going near there now. We hope 2023 will bring about some improvement,” she said.
The unfavorable rates at the Eurobond market, particularly for African debtors is not unconnected to the Ghana’s shocker late last year. The West African country had asked bondholders to accept losses on loan interest payments, as the country struggled to stand under its huge debt burden.
Ghana’s debt stood at $28.1 billion of debt at the end of June last year and debt-serving costs made up about 68 per cent of tax revenue over the same period.
However, chief executive of Cowry Asset Management, Mr. Johnson Chukwu, warned that Nigeria may be heading in the same direction with Ghana if care is not taken. Already Nigeria spends more than 100 per cent of its retained revenue on servicing its loans.
Noting that Nigeria was already indebted to other countries and that the budget deficit would make Nigeria to continue to borrow in order to service her debts, Chukwu said, with a N12.1 trillion deficit, Nigeria is bound to continue to borrow and increase her debt profile.
“Today Ghana is defaulting on both local and international debts and Nigeria should be careful not to toe the line of Ghana in terms of borrowing to service debts. Any country that is borrowing to service debts is in a debt trap that could consume such country and that is where Nigeria is gradually heading to.
Prof Godwin Owoh, the executive chairman of Society for Analytical Economics questioned the figures presented by the government as money borrowed through ways and means. According to him, the figures are based on any audited financial statement or official report showing how much was borrowed.
He said the assessment of the IMF is a red card, adding that ways and means, as prescribed in section 38(2) of the constitution, is for temporary borrowing that must be paid back in 6 months. It is not for financing capital projects.
Prof Owoh said, “Signals from the IMF, World Bank and the international community is that the management of the economy has failed. The immediate reaction is to stop borrowing. When did the government borrow N22trn from the CBN with an interest that is over N1trn?”
He advised the present government, which he said is now in transition not borrow again adding that the next government will naturally seek to pass a supplementary budget. Besides, he said, the Chinese, IMF and other creditors have realized they can’t keep lending to this government.
He backed the National Assembly for rejecting the securitization of the N22trn owed the CBN saying you can’t issue an instrument for money already spent in the name of paying back a loan.
He said, “It is unthinkable to people to invest when the money has already been spent. Who is the government going to pay back? Who owns the CBN? The CBN is part of the presidency. It is not another country.”
On his part, renowned economist and former director general of the West African Institute of Financial and Economic Management, Prof. Akpan Ekpo, stressed the need for the government to ‘cap its borrowings.’
Noting that, there is nothing wrong in borrowing provided it is to finance hard infrastructure that has a long term positive effect, he stated that, “the problem with Nigerian borrowing is that there is not much transparency we don’t know what they are borrowing for.
“Also important is the fact that debt service is too high. If you look at every budget virtually almost one tenth is used to service debt and we have not even started touching the debt. So, we have to be cautious. The government will argue that debt to GDP allows them room to borrow but GDP does not pay debt, revenue pays debt and if you take revenue to debt ratio, we cant even borrow at all because two third of revenue comes from oil and the revenue from oil is not a sure revenue.
“I don’t envy any government coming in. Debt is a problem on one side and other problems on the other side. And more importantly, these debts will be paid by the future generation. If we are not careful the future generations will abuse us in our graves because they will see the debt and not see what it was used for.
“No good roads, no good railways, no water, education is in disarray, health system exposed by the Covid-19 is in trouble. Time flies and in no time 20 years have passed and we are still servicing the debts. We should not borrow because we have space to borrow or because we have B+ ratings by rating agencies. They are getting us more and more indebted.”
Meanwhile, experts have charged the federal government to repay loans it used in building rail lines, among other infrastructure across the country.
Mixed reactions has continued to trail declaration by the present minister of Transportation, Engr. Mua’zu Sambo, that inability to secure loan in the international debt market to finance rehabilitation of Port-Harcourt- Maiduguri rail line has affected the feasibility of completing the project this year.
