Nigeria requires an estimated $300 billion to address her infrastructure deficit. This represents 25 per cent of her Gross Domestic Product (GDP). But attempts to mobilise the cash to execute key infrastructural projects through borrowing have not gone down well with some stakeholders. They argue that rather than plunge the country into a debt trap, the government should turn to other sources to fund infrastructure. Assistant Editor CHIKODI OKEREOCHA reports.
The situation is dicey. Price of oil, Nigeria’s main revenue earner, is yet to rebound. With Brent crude hovering around $48.46 per barrel, as at last week, the economy is yet to recover from the global slump in oil prices. The crisis, which started mid-June, 2014, forced a sharp drop in oil price from over $115 per barrel to the current $48.46.
The reduction in revenue made it extremely difficult for the Federal Government to meet its financial obligations. This left it with no choice than to turn to international financial institutions for loans to finance critical infrastructure projects.
According to experts, Nigeria requires about $300 billion to fix her infrastructure. This represents 25 per cent of her Gross Domestic Product (GDP), implying that an investment of about $25 billion is required annually to close the yawning infrastructure gap.
Experts in diverse sectors argue that without massive investment in infrastructure, particularly electricity supply, road and rail network, among others, the economic development and growth goals, articulated in the Federal Government’s Economic Growth and Recovery Plan (EGRP), will not be achieved.
But with the sharp drop in oil prices, getting cash to build infrastructure became a challenge for the Federal Government. This was why the government turned to borrowing to fix infrastructure.
“So, when we started the argument, should we borrow, should we not? The truth is that we have no choice,” Minister of Finance Mrs. Kemi Adeosun said, at a recent forum in Abuja with the theme “Beyond Recession: Towards a Resilient Economy.”
She continued: “If you are waiting for oil price to recover, the prognosis is that it’s not going to go back to $110 per barrel any time soon. So, to get the economy growing, we have no choice but to look for low-cost funds and put that infrastructure in place, because it is the infrastructure that will unlock the economy’’.
While experts and operators in various sectors agreed with the Finance Minister that infrastructure deficit remained one of the stumbling blocks on Nigeria’s road to economic growth, they however, expressed fears over the spate of borrowings by government. They were apprehensive that the nation’s increasing debt profile was becoming unsustainable.
Nigeria’s total public debt – foreign and local – stood at N19.16 trillion as at March 31, 2017, according to the Debt Management Office (DMO). It increased from the N17. 36 trillion recorded at the end of December 2016, representing an increase of N1.8 trillion.
The DMO said at the end of March 2015, Nigeria’s total indebtedness was N12.06 trillion. This implied that the debt level increased by N7.1 trillion within two years.
DMO, which coordinates the management of Nigeria’s debt, said of the total debt stock, domestic debt stood at N11.97 trillion, against N8.51 trillion recorded in 2015. This represents a domestic borrowing record of N3.46 trillion, representing 40.71 per cent.
On the other hand, external debt for federal and state governments rose from $9.46 billion to $13.81 billion in two years, representing an increase of $4.35 billion, put at 45.98 per cent.
According to the DMO, the country’s external debt for March 31, 2017, was calculated using the official exchange rate of N306.35 to $1, while the official exchange rate of N197 to $ 1 was deployed in determining the foreign debt for March 31, 2015.
Meanwhile, the domestic debt profile of the states stood at N 2 .96 trillion as at March 31, 2017, rising from N1.69 trillion at the same time in 2015, representing an increase of N1.27 trillion.
No cause for alarm, says Fed Govt
Obviously aware that the debt figures sent jitters down the spines of not a few stakeholders, the Director-General, Budget Office of the Federation, Mr. Ben Akabueze, sought albeit successfully to allay fears that at N19 trillion, Nigeria’s debt stock was becoming unsustainable.
He said there was no cause for alarm as the country’s total indebtedness of N19.16 trillion was sustainable, and still within the globally accepted threshold.He said rather than worry about the level of borrowing, the priority should be on how to shore up revenue that would enable the government finance its programmes.
As the DG of Budget Office noted, “Our revenues are way too low for the size and potential of this economy and that is why we have the lowest tax to GDP ratio in the whole continent. We are right there at the bottom globally simply because people are not paying taxes and we also have to ensure that even what people pay does not leak and it is properly accounted for.
Mrs. Adeosun also advanced the same argument. She said that Nigeria’s debt was not too high, but that her revenue was too low. According to her, the country’s debt to GDP ratio remained low.
Listen to Adeosun: “The problem is not that our debt is too high, but that our revenue is too low. It is revenue you use to pay debt and our revenue in Nigeria right now is very low. Most of our debt matures between two years. That means that the actual amount of interest we are paying is significant.
“What we are doing right now is refinancing most of that debt, especially those maturing within the next two years. We are also working on improving government revenue through tax.
“Our tax to GDP is six per cent; we are one of the lowest in the world. Ghana is 15 per cent, South Africa, 24 per cent. So, what we are doing is working very hard to see how we can get more people into the tax net and how to get those who are already in the tax net to pay the right taxes.”
Stakeholders disagree
However, some economic and financial experts refused to be swayed by government’s explanations. Some of them warned that government should be wary of plunging the country into another debt trap.
For instance, the Chairman, Petroleum and Natural Gas Senior Staff Association of Nigeria and National Union of Petroleum and Natural Gas Workers (PENGASSAN & NUPENG) National Petroleum Industry Bill (PIB) Committee, Comrade Hyginus Onuegbu, lamented that at N19.16 trillion, Nigeria’s level of borrowing was on the high side.
Recall that Acting President Yemi Osinbajo had last month signed the N7.44 trillion 2017 budget into law. The budget had a revenue projection of N5.08 trillion and an aggregate expenditure of N7.44 trillion. The projected fiscal deficit of N2.36 trillion, according to Osinbajo, is to be financed largely by borrowing.
The budget, the Vice President said, set aside N1.84 trillion for debt servicing, N177.4 billion for sinking fund, N2.97 trillion for recurrent expenditure (non-debt) and N2.177 trillion for capital expenditure.
But Onuegbu observed that, “Nigeria’s debt service obligation was too high. It’s a big challenge as far as the budget is concerned. As a matter of fact, one third of the budget is to be financed by borrowing. When you borrow money, the reason for which you borrow money must be economically viable to be able to repay the loan otherwise that loan will become a big burden on you.”
Similarly, a Lagos-based lawyer and public affairs analyst, Mr. Akabogu Obiora, lamented that Nigeria’s rising debt profile was worrisome. “It’s worrisome. I don’t see any reason why Nigeria should go a borrowing again, whether it is from a benevolent creditor or not.
“The fact that Nigeria passed through a lot under the previous debt bondage should have been enough reason for government to be wary of borrowing and going back into the debt trap,” he said.
Akabogu argued that the rising debt stock would plunge the country into another debt trap, which is an aspect of colonialism, because “he who pays the piper dictates the tune.” He said rather than do so, government should explore other viable sources to raise the required fund to build infrastructure.
To drive home his point, Akabogu asked, “What is the use for Excess Crude Account (ECA)?” noting, “The external reserves is there. I am aware that it has not been completely depleted. There is Sovereign Wealth Fund, Value Added Tax (VAT) as well as money accruable from Customs and Excise.”
The legal practitioner pointed out, for instance, that the Nigerian Customs Service (NCS) is the only organisation in Nigeria that continues to declare surplus all the time.
Indeed, Adeosun had said that apart from borrowing, part of government’s survival strategies was to make sure that revenue generating agencies remitted their operating surpluses to the coffers of the government.
Akabogu also said there is a lot of money from the private sector to build infrastructure. “There is capital inflow into the country from foreign investors. Nigeria continues to be number one investment destination,” he stated.
Apart from the nation’s rising debt burden, government’s alleged propensity to borrow to finance recurrent rather than capital expenditure has also not gone down well with Akabogu and indeed, other economic and financial analysts.
For instance, as far as the Chief Executive Officer, Financial Derivatives Company Limited, Mr. Bismarck Rewane, is concerned, it was wrong for the government to be mainly borrowing to support recurrent expenditure. Hear him: “We need to move away from debts for recurrent expenditure to debts for capital expenditure, which is projects-specific. The debt level itself is not dangerous, but the debt service level – the debt burden – is very high.
“We are using 66 per cent of our independent revenue to pay interest. So, interest rates must come down substantially, or else, we are in trouble.”
Similarly, a Professor of Political Economy and management expert, Pat Utomi, said, although, there are times that a country needs to spend its way, literally out of the challenge of output such as a recession, there is need for caution to avoid getting into an unsustainable debt scenario.
Indeed, Adeosun and other renowned experts had, at various times, argued that Nigeria needed to spend her way out of recession; that a better way to do it was for government to borrow to finance infrastructure projects.
Another renowned industrialist, Mr. Henry Boyo, noted that although, there is nothing wrong to borrow to improve on social welfare and infrastructure, it is worrisome for government to borrow at the same time that it already owes so much money to the extent that it is using a huge percentage of its real income to service debts.
The economist also expressed concern over government’s plan to borrow to build infrastructure especially in view of the rampant evidence that government-funded infrastructure had never been properly managed.
He said that with the sad record of poor performance of government agencies and institutions, it is worrisome for anybody to suggest borrowing to create more infrastructures that would be government managed.
This may have prompted calls for Public Private Partnership (PPP) model for designing, building, financing and operating new and existing infrastructure. Yet, others want the Federal Government to turn to its pool of pension funds put at N6.02 trillion as at November 2016. With the National Pension Commission (PenCom) projecting that Nigeria’s total pension asset may hit N20 trillion by 2020, it is hardly surprising that government, according to Osinbajo, was working on how to tap into this huge fund to finance infrastructure development.
Will government pull the breaks on borrowing and explore other options?
