How Nigeria’s N1.95tr budget deficit will alter debt service gains

Nigeria’s debt stock and service bill will receive a notch up as the fourth straight budget deficit plan of about N1.95 trillion in the 2018 fiscal appropriation awaits President Muhammadu Buhari’s assent.The appropriation bill of N9.2 trillion will be signed into law tomorrow.

A financial expert, backed by a source close to the legislature, said the deficit was moderated to N1.95 trillion after lawmakers increased the crude oil price benchmark to $51 per barrel and also stepped up the total spending by about N500 billion.By the usual borrowing pattern, not less than half of the deficit plan of approximately N1 trillion will be financed by foreign debt deals, while the remainder will go to the local market.

Consequently, the official debt figures at over N21.7 trillion will increase by N1.95 trillion, while debt service bill will get about N180 billion additional provision, given that N2 trillion is already earmarked in the 2018 appropriations for the current debt stock.Currently, the country has been refinancing its local debts, adjudged to be costly and aggravating the nation’s debt service bill by about $500 million foreign loans.

The Minister of Finance, Mrs. Kemi Adeosun, reiterated that refinancing the country’s inherited debt portfolio from short-term treasury bills to longer tenured debt has resulted in huge savings and reduction in costs of funds for the government.The minister, in an email response to The Guardian, recently, said the nation’s debt-service-to-revenue ratio recorded a new decline from about 66 per cent to 45 per cent, courtesy of improving revenue mobilisation from both domestic and foreign sources.

While the country’s debt-to-Gross Domestic Product (GDP) has remained below acceptable threshold, the challenge has been the ability to repay the associated costs and impairments on available funds.The Lead Director of Centre for Social Justice, Eze Onyekpere, said budget deficit on its own cannot be adjudged good or bad, except on the ground of how the funds are used.

“The challenge is that the deficits and borrowings do not seem to be impacting on the stock of capital, which is expected to improve the ease of doing business, livelihoods and upgrade the social indicators. This is not reflecting so far. “The debt stock has increased by over 90 per cent since the Buhari presidency, and this is not the best way to go within a space of three years. We would appreciate a situation where the government attracts more investments rather than enhancing the accumulation of sovereign debt,” he said.

The Head of Research, FSDH Merchant Bank Limited, Ayodele Akinwunmi, noted that about N1.05 trillion will be sourced from the domestic market through the FGN Bond market and would place upward pressure on the yields on government bonds.Also noting that there was no provision for Premium Motor Spirit (PMS) subsidy in the 2018 budget, he said the deficit might increase when the PMS subsidy is factored in.

The Managing Director of Cowry Asset Management Limited, Johnson Chukwu, said that while there is no wrong in using budget deficit to stimulate the economy, his worries are the retained manner in the distribution of government expenditures.“A country that wants to stimulate its economy uses deficit budgeting for the real sector. For now, we are still seeing increase in recurrent expenditure in absolute terms.

“If we invest in capital asset, it will certainly prime the GDP significantly and create the opportunity to repay. As it is, we are incurring debt and increased service bill with potential difficulty to pay. We are not making major headway in the power and energy sector,” he said.An Abuja-based public affairs analyst, Jide Ojo, admitted that Nigeria, like the rest of other economies, is plagued with deficit budgeting, which necessitates borrowing, but warned that the wrong notion that our debt-to-GDP ratio is one of the lowest in Africa and in the world is untenable.

“The main worry is the opaqueness in how much of our borrowings is applied. There are allegations that a sizable portion of our loans ends up in private pockets or is generally misapplied to non-priority projects.“To cut down considerably on our borrowings, there is a need to genuinely diversify the economy and plug all revenue loopholes by the judicious application of these loans incurred in the name of budget deficits,” he said.

Also, the Executive Director of Centre for Human Rights and Conflicts Resolution, Idris Miliki, took another swipe at government’s handling of information regarding the borrowed funds, saying it is the height of non-clarity.“Governance in this country has become too deceitful and opaque. It is not clear what projects the borrowed funds in the name of budget deficit are targeted, except ‘infrastructure projects.’“Where and how to monitor the investments are so difficult to know. No one knows whether government’s earnings are put together with the borrowed funds. Sincerely, there are many things we do not know in this country about public finances and there is no physical infrastructure to justify much of what we hear,” he said.

The Guardian

News Reporter

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