Nigeria’s Rising Debt Servicing, An Economic Threat

The increasing debt service of Nigeria is an economic threat to the country, the Securities and Exchange Commission declared on Thursday.

But this might not stop the Federal Government from borrowing to fund the 2021 budget, as the Minister of Finance, Budget and National Planning, Zainab Ahmed, insisted that government had to borrow.

In January, The PUNCH reported that Nigeria spent almost N2tn on debt servicing payments from January to September 2020, based on data obtained from the Debt Management Office.

At the 5th Annual Budget Seminar of the Securities and Exchange Commission with the theme, “Financing Nigeria’s budget and infrastructure deficits through the capital market,” the SEC also stated that shocks to commodities were affecting revenue generation.

It disclosed this in a presentation delivered by the Head, Economic Research and Policy Management Division, Office of the Chief Economist, SEC, Afolabi Olowookere.

The commission said, “Total public debt has increased from N5.24tn in 2010 to over N32tn in 2020. Still fine at around 20 per cent of GDP (Gross Domestic Product).

“But rising debt service is a threat. Also shocks to commodities price (are) affecting revenue. And low tax to GDP ratio.

“Moving towards improved sustainability may require future debt tied to revenue-generating projects.”

The commission observed that Nigeria’s budget had more than doubled in the last 10 years, while the country’s deficit had increased several folds.

“But capital expenditure and infrastructure estimates have not increased much. Implying deficit is often incurred to finance short-term consumption (unproductive) items,” the commission stated.

The SEC report also stated that the Federal Government’s Economic Recovery and Growth Plan projections were largely unmet.

But in her remarks, the finance minister stated that the country had to borrow to finance its budget given the urgent need to build infrastructure required for creating an enabling environment.

This, Ahmed said, was further underscored by the current global pandemic with its attendant effects to Nigeria’s daily economic and social activities.

She said, “In order to provide the necessary infrastructure and still continue to meet other immediate expenditure needs, government often adopts deficit budgets which have to be financed through borrowing.

“In this regard, the capital market is very key. Of course, experience has shown that the Nigerian capital market has been very supportive in providing the necessary funds to finance government programmes and projects.”

Ahmed explained that the aggregate Federal Government budget together with the budgets of government owned enterprises and project tied loans was N13.59tn.

The minister said, “The (2021) budget has a total aggregate capital expenditure of N4.37tn amounting to 32.2 per cent of the total expenditure.

“The budget also has an overall deficit of N5.6tn to be financed almost equally from domestic and foreign sources.”

Ahmed stated that Nigeria needed to spend more now on infrastructure and other capital projects, as the benefits of spending resulted in Nigeria coming out of recession after two quarters of negative growth recently.

She further stated that the government could not finance infrastructure alone, but would have to partner the private sector through the capital market.

The minister urged capital market operators to consider retail investments and give opportunity to ordinary Nigerians to invest in the capital market in an easy and simple way.

– Punch