Figures presented by the Debt Management Office as of March 2021 show that Nigeria’s total debt stock is 33.107 trillion naira. This includes the outstanding debt of the federal government, 36 state governments and the Federal Capital Territory.
Another breakdown of the debt stock shows that the promissory notes stood at 940.220 billion naira, the stock of domestic debt stood at 20.637 billion naira while the stock of external debt remained at 32, $ 86 billion. The federal government went further to secure another loan in June, and in July the outstanding debt stood at N35.465 billion.
Recurring debt from federal and subnational governments has led to continued deficit financing of the national budget, with 30% of the annual budget allocated to debt service. In 2020, the sum of 3.7 trillion naira was used for debt service; in 2021, the sum was 3.12 trillion naira and the proposed budget for 2022 foresees a sum of 3.60 trillion naira for debt service. Assuming that Nigeria does not borrow for the next 10 years, the current amount allocated to debt service would wipe out its debts, but with the level of fiscal indiscipline displayed by different levels of government, this remains a problem. just wishful thinking.
The national budget has been running on deficit financing for eight years. Worse yet, Finance Minister Zainab Ahmed reiterated that Nigeria will continue to borrow to finance infrastructure projects. On the contrary, with the volatility of the exchange rate and the low income generated internally, the only option available for Nigeria to rebound economically is to extend its tax net, develop and implement economic policies that would strengthen the naira. and comply with tax laws. rule the country.
The Fiscal Responsibility Law in Article 12 states that the aggregate expenditure and the aggregate amount allocated by the National Assembly for each financial year shall not exceed the estimated aggregate revenue plus a deficit, not exceeding three percent of the proceeds. estimated gross domestic. or any sustainable percentage determined by the National Assembly. In addition, section 41 (1) of the law provides the rules for borrowing as follows: government at all levels borrows only for capital expenditure and human development, provided that this borrowing is at concessional terms with a low interest rate and with a reasonably long amortization period, subject to the approval of the relevant legislative body.
This provision was seriously violated because the most recent loans were also used for recurrent expenses. The expenses related to COVID-19-related interventions coupled with increased insecurity could be explained by the increase in recurrent expenses. The continued presentation of supplementary budgets after the approval of the main budget indicates that the process of preparing and developing the medium-term expenditure framework is not well thought out and can be described as flawed. FRA S. 36 1 provides that the creation, extension or improvement of government action which results in an increase in expenditure must be accompanied by (a) an estimate of the budgetary or financial impact in the year of its entry into force and in the following two years, and (b) a declaration from the person requesting the expenditure, indicating that the increase is in accordance with the appropriation law and the MTEF. Against the provision of the law, it was found that most of the supplementary budget requests are to be financed by loans which are not linked to the MTEF
In addition, Article 44. (1) provides that any government of the federation or its agencies wishing to borrow must, specify the purpose for which the borrowing is intended and present a cost-benefit analysis, detailing the economic benefits. and social of the object to which the contemplated loan is to be allocated. Contrary to the provisions of the law, most recent debts were not accompanied by any cost-benefit analysis or repayment plans.
The Financial Reporting Council is mandated to publish on a quarterly basis a list of federation governments that have exceeded consolidated debt limits, indicating the amount by which the limit has been exceeded. The law also provided that violators of the limit were prohibited from borrowing from internal or external sources, except to refinance existing debts. However, the federal and state governments have repeatedly justified their continued borrowing on the basis of the size of GDP, which, in real terms, does not accurately reflect gross national income.
In order to prevent the negative trend, the FRA should be amended to contain provisions requiring national and subnational governments to provide information on their consolidated debt profile in the preparation of their MTEF. This information would serve as a guide for the approval or disapproval of future loans by the National Assembly. Likewise, the provision of the law mandating the government to ensure that the level of public debt is proportional to national income and maintained at a sustainable level as prescribed by the National Assembly must be fully implemented with evidence. Sanctions for violations should also be prescribed.
Victor Emejuiwe, good governance and public affairs analyst, can be reached on 08068262366