DMO decries growing debts, demands MDAs’ budget scrutiny

The Debt Management Office has decried Nigeria’s growing debt profile, blaming it on low revenue generation and remittances as well as annual deficit budget by the Federal Government.

The Director-General, DMO, Patience Oniha, on Thursday in Abuja, said the country had been indebted to the tune of N41. 6tn as of March 2022, pointing out that borrowing would continue until the government addressed the issues concerning the personnel, overhead and capital costs of the ministries, departments and agencies.

Oniha made this known in her presentation to the House of Representatives’ Committee on Finance at the hearing on the proposed 2023-2025 Medium Term Expenditure Framework and Fiscal Strategy Paper.

The DMO boss said, “As you know, we publish the debt numbers quarterly, which is why there is a lot of discussion around it. But let me just give some numbers. As at December 2020, the debt stock of Nigeria – and that includes the federal, state governments and the Federal Capital Territory – was N32.92tn. By December 2021, it was N39.556tn. As at March of this year – we publish quarterly – it was N41.6triilion. On the average, it is about 85 per cent of the total (debts that belongs to the Federal Government). Technically, the bulk of it is the Federal Government.”

“Speaking specifically to the question, and it is a genuine concern that Nigerians ask, and you as the stakeholders in Nigeria with responsibility for borrowing ask. Debt has grown and that has come really from the annual budget. There are three levels where those borrowings have increased. We have been running deficit budgets for many, many years. So, each time you approve a budget with a deficit, by the time we raise that money,  it will reflect on the debt stock. So, debt stock will increase.

“Also, remember that the states are also borrowing. So, we add their own. They also have laws governing their borrowings.”

She added, “The second leg to that really is that as the debt stock increases,  debt service increases. And so, the clear message is, go through the budget. We have been having deficit budgets for many years and have been borrowing significantly. From COVID in 2020, the level of borrowing has increased significantly as you know. Those budgets pass through this House. The issue is, how do you reduce that debt. One of it is revenues, which we have talked about. So, if revenues are high, your deficit will be lower and your new borrowing will be lower; and then, your new borrowing will be less and your debt stock will be slower and debt service to revenue (ratio) will be so high.

“So, the challenge is, we have been borrowing because of shortfalls. So, the other thing to do is, let us look at our expenditure profile. What can we do to reduce it? You asked me what the remedy is. It is from the budget. There is revenue, there is expenditure listed in various categories – personnel, overhead and capital. So, those are what bring out the deficit we borrow for. It is those things that should be interrogated in addition to increasing revenue significantly.”

Oniha recalled that a recent World Bank report showed that Nigeria was low in terms of debt-to-Gross Domestic Products ratio, but the country’s debt service-to-revenue ratio remained high. “So, if you look at tax-to-GDP ratio of these other countries, they are in multiples of Nigeria,” she added.

The DMO boss stressed, “So, we can’t talk about borrowing without talking about revenues and we can’t ask why the debt stock is growing. It’s growing because we are running deficit budgets. Some of you may be aware: we are also issuing promissory notes to refinance arrears of the government which also comes to the National Assembly for approvals.

“We talk about N11tn deficit and borrowing for 2023. How much is the revenue there? That is one. When we looked at the first tranche that was N10tn for full year of subsidy and N9tn for subsidy next year, the size of the borrowing was 62 per cent of the budget. That is high. The responsibilities, I think, are on both sides. Query the various expenditure lines and see what it is we can handle. So, if the deficit is lower, the borrowing will be lower and that’s how to grow on a slower pace. I have just said what the sources of those debts are and we need to focus on revenue.”

A member of the committee, Stanley Olajide, asked when Nigerians could raise the alarm over the country’s continued borrowings, but Oniha called for a review of the country’s budgeting system. According to her, while the World Bank and the International Monetary Fund put a benchmark of 55 per cent to borrowing, Nigeria set a 45 per cent limit for itself.

The DMO boss stated, “You are correct in the sense that the World Bank and the IMF, who typically set standards and use these standards to measure so that countries can be benchmarked. So, for countries like Nigeria, meaning, we, Egypt, Kenya and some other countries in Asia and other parts, their advise or recommendation is that your debt-to-GDP ratio, meaning that total debts should not exceed 55 per cent. They didn’t specify a ratio for debt service-to-revenue ratio.”

Another member of the committee, Taiwo Oluga, said her concern was about the frequency of the borrowings without concrete efforts to boost production, expressing fears that the previous loans obtained might.not have been judiciously utilised, but Oniha justified the borrowings, saying they were for infrastructural development.

The DMO boss said, “I think it is a valid question. I think we should be fair to ourselves as people serving Nigeria to say that we can’t see what we use the borrowing for, but that might not be exactly true. Look at the airports. How many do you have? You have a new international airport in Abuja. You have the modernisation in Kano, even in Enugu that is now international. Those came from borrowings. The rail lines have also come from borrowings. So, it is not that is a zero performance. Those things generate revenue in some other countries. We have those projects, not just this one in Abuja. Then on Sukuk, which is a project tied borrowing, you have seen those ones.”

The committee’s Deputy Chairman, Saidu Abdullahi, who presided the hearing, said, “I want to appreciate the fact that for a developing country, the need for borrowing will always be there. It doesn’t matter how much we make, the country must borrow. What we should be interested in is the sustainability of what we are borrowing and from what she has said, the country is on a good pedestal in terms of managing its borrowing.”