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Stakeholders call for reduced borrowing to finance the budget

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Stakeholders in the financial sector of the national economy have urged the federal government to take structured steps to reduce the country’s inclination to borrow to finance its national budget each year.

To this end, they advised the government to turn in on itself to raise the funds needed to finance the national budget.

While they recognized that there is nothing wrong with borrowing to finance the budget, they were more concerned about the long-term ability to honor these debts without spillover effects on the country’s tax system. The fact that Nigeria is not producing much that could raise the profile of growing debt is a serious concern for stakeholders.

The CEO of the Center for the Promotion of Private Enterprise (CPPE), Dr Muda Yusuf, said, while reacting on the 2022 budget, that the sum of 3.88 billion naira budgeted as debt service is a substantial amount compared to the provision in the N5 capital budget. .46 trillion. “Paying debt service is usually a frontline charge in budget publications. The ambitious budget of N17.1 trillion and the unpredictable revenue outlook increases the risk of a larger-than-expected budget deficit. This has implications for macroeconomic outcomes of high budget deficits, a new round of deficit monetization, pressures on the exchange rate and general price level, ”he said.

Yusuf noted that the government’s growing debt profile raises serious sustainability issues, saying that although the government tends to argue that the condition is not a debt issue, but an income challenge.

“The truth is, debt becomes a problem if the income base is not strong enough to service the debt on a sustainable basis. It invariably becomes a debt problem.

“What is needed is the political will to cut spending and undertake reforms that could reduce the size of government, lower governance costs and ease the government’s tax burden. It is important to ensure that the debt is used strictly to finance capital projects that would strengthen the productive capacity of the economy. This is the position of the law on fiscal responsibility.

“In addition, the focus should be on concessional financing, as opposed to commercial debt which is usually very expensive. It is imperative that the country functions as the real federation that it claims to be. The unitary character of the country makes it difficult to exploit the economic potential of sub-nationals. It perpetuates the culture of dependence on the federal government.

For his part, the former director general of the West African Institute for Financial and Economic Management (WAIFEM) and chairman of the Foundation for Economic Research and Training, Professor Akpan Ekpo, called for the government to be cautious about external loans.

“It is true that you borrow when you do not have enough income to finance your projects, but looking at the budget, 3 trillion naira is set aside for debt service, not even for the principal payment. . Even though the government says that the GDP ratio puts us in the benchmark for borrowing, it is not the GDP that pays the debt. Income pays debt and if we look at our debt-to-income ratio, we have cause for concern.

“They’ve tried to deliver the programs within budget which is laudable, but in terms of seeing what happens the government hasn’t really done well and then there’s the issue of debt profile. We borrow a lot and the government is not as transparent about the projects financed by the loan and how far the projects have gone, ”he said.

Speaking in an exclusive interview with LEADERSHIP, renowned economist Dr Tayo Bello, while expressing his dissatisfaction with the amount the country will use to service its debts as reflected in the 2022 budget, said Called for a tax assault to ensure more taxable Nigerians pay taxes, saying tax enforcement in the country is very low compared to those who are qualified to pay taxes but do not.

He believes that increasing tax revenues could limit the country’s inclination to borrow, thereby reducing the country’s debt profile.

Stressing that it is high time for the government to collect more money from the local market than foreign loans, he said the volatility of the forex market would always put Nigeria at a disadvantage in this circumstance.

Likewise, a lecturer from Lagos Business School (LBS), Dr Frank Ojadi, said: “Overall we are going to find ourselves in a situation we find ourselves in last year again this year as the Budget execution indices in 2021 will be the same for 2022 because the 2022 budget is rushed up.

For her part, the director general of the Lagos Chamber of Commerce and Industry (LCCI), Dr Chinyere Alumona, said the government must explore cheaper alternative sources of finance away from debt.

“In the revised budget as adopted by the National Assembly, the projected retained earnings were raised to 10.3 trillion naira against 10.13 billion naira proposed in the revised 2022 budget. -Being too ambitious when we look at the performance of budgeted revenues for 2021, ”she underlined.

Alumona noted that most of the items for which additional funding has been requested are recurring expenses, saying the government may be under pressure regarding these recurring expenses, “but it is not the best practice to borrow for consumption. “.

“Given that income fundamentals are currently weak, the ideal is to reduce the cost of borrowing, especially the high deficit and the cost of debt projected in the revised federal budget. The federal government should focus more on interest-free asset-linked securities, as these unleash income and long-term growth.

“The federal government should allow the private sector to invest in certain commercially viable infrastructure projects in order to generate revenue to finance its budget instead of debt financing,” she said.

Analysts at Cowry Assets Management Limited noted that much of the country’s growing debt was spent on recurring spending and abandoned investment projects that could have facilitated business operations and catalyzed profitability which in turn. , generate higher revenues through taxation for the government; hence the imbalance between physical infrastructure and huge debts so far.

On the 2022 budget, they said. “So we expect the federal government to tie each tranche of loan to a particular investment project, as evidenced by its Sukuk loans, which have been more effective in providing infrastructure.

“In the meantime, we welcome the positive mood coming from the executive side, as presenting the budget on time would allow swift implementation.”