More worries over borrowings, foreign reserves depletion

• ‘Growing foreign reserves to $40b may douse FX tension, inflation’
• Nigeria borrowing to fund salaries, trips
• About 83 per cent revenue goes into debt service
• Onyekpere calls for cancellation of revenue collection percentage to FIRS, Customs

Stakeholders are unsettled over the Federal Government’s plan to borrow a fresh  $6.18 billion (N2.343 trillion) amid rising debt profile, which may push the country’s debt to about N36 trillion, with as much as over N25 trillion of the sum contracted in the last six years of the current administration.

Coming at a time when President Muhammadu Buhari is canvassing for debt relief for the country and other nations in Africa while wooing investors into the country, experts, who spoke with The Guardian yesterday insisted that the country’s growing debt profile should create great concern for Nigerians.

The Director-General of the Debt Management Office (DMO), Ms. Patience Oniha, was, however, quick to correct the impression that the current loan request before the National Assembly was a fresh one, as according to her, it was already approved and captured in the 2021 Appropriation Act already being implemented.
“What we merely did is comply with the DMO Act, which mandates us to seek the approval of the National Assembly for all foreign lending. Of course, the National Assembly had already approved of the borrowing plan as already captured in the 2021 Appropriation Act,” Oniha explained.
She also provided the deployment plan for the funds to be raised. “The proposed new capital raising, in fulfilment of the provisions of Sections 21 and 27 of the Debt Management Office (Establishment, Etc.) Act, 2003, will be deployed to capital projects in various sectors of the economy, including power, transport, agriculture and rural development, education, health and water resources already included in the 2021 Appropriation Act.”

A public finance expert and Senior Research Fellow at the National Institute of Legislative Studies (NILS), Dr. Abraham Terfa, said the request for foreign loan for capital projects is not a bad idea if only the capital projects are well-drafted, initiated, monitored and executed with the growth of the economy at the back of the minds of policymakers. In the absence of this, it will just be a repetition of previous cycles created by the government for mismanagement of funds.

“The purpose of taking up capital projects is to create multiple streams of revenue for the economy, thereby causing a boost and the possibility of clearing previously owed debts. The implication of this foreign loan is that it will cause more accumulation of debts as well as an increase in debt servicing.”

But other respondents have contrary views, noting that with virtually no feasible option apart from borrowing, the $6.18 billion additional loans could douse the country’s foreign exchange crisis and reduce inflation, especially if the borrowed fund is judiciously spent.

Dealing with the volatility in the oil and gas sector, Nigeria’s economy, which has suffered two recessions lately, has been on the edge, like subsidies on Premium Motor Spirit (PMS) and electricity, which are estimated at about N2.5 trillion yearly, worsen government’s ability to finance an N13.6 trillion 2021 budget. The budget was originally prepared with an embedded N5.6 trillion deficit.

Given that the Organisation of the Petroleum Exporting Countries (OPEC) had capped the nation’s oil production to only 1.5 million barrel per day as the global cartel fights to stabilise crude oil, Nigeria had continued to face a foreign exchange crisis, a development, which has pushed $1 to close N500 at the black market.

Recall that the Central Bank of Nigeria’s Nigerian Autonomous Foreign Exchange Rate (NAFEX) also called the Investors’ and Exporters’ Forex Window, initiated to harmonise exchange rates had forced the rates to oscillate between N408 and N412 for months, a significant fall from the N379 quoted as the official rate.

Activities at the NAFEX window showed the Naira trading as low as N426.67/$ at the weekend before closing at N411.67. At the parallel market, Naira also declined to N484.00. The policy shift also confirmed longtime speculation that the NAFEX is the default official rate.
Head, Investment Research at United Capital Plc, Wale Olusi, told The Guardian that the move by the president would further worsen the country’s debt burden and increase the amount the country needs for debt servicing but insisted that it was the best option for the country.

Olusi was primarily concerned about the ability of the fund to improve the country’s external reserves and how the development would boost the nation’s economic outlook and reduce the existing foreign exchange crisis while improving the nation’s inflation outlook.

“If we are able to get the dollar loan, it will accelerate the growth of the external reserves. It will take the external reserve to $40 billion. This can help the CBN manage the financial market better. It will therefore stabilise the forex market. It will also help to bring down inflation. With a stable FX, the investment will come in.

“On the negative side, it will worsen our debt profile. We will need more money to service the debt. We need to therefore do something about our revenue. We need to be able to generate revenue that is more than two times the size of the debt that we are taking.”

Olusi noted that the burden could worsen if the country fails to improve revenue generation and put the loan to productive use such that the fund leads to more employment and industrial development.
MEANWHILE, Nigeria’s foreign exchange reserves have depreciated by $790 million despite the rise in crude oil prices. The foreign reserves stood at $34.35 billion, the Central Bank of Nigeria (CBN) website showed.

Managing Director, Financial Derivatives Company Limited, Bismarck Rewane, said oil prices touched $70 per barrel (pb) for the first time since mid-March on improved oil demand amid the ease of restrictions in the United States, United Kingdom and some European countries.

The bullish outlook for oil is further bolstered by the pent-up travel demand that is set to be let loose in the summer with the resumption of international flights. This could push oil further up to $75pb by next month. While this is positive for fiscal and external accretion, the fuel subsidy debacle will present itself again, this time more ferociously.

The reserves decline has also been attributed to a drop in diaspora remittances due to the patronage of illegal remittance channels. To reverse the trend, the CBN Governor, Godwin Emefiele, announced the continued implementation of the ‘Naira for Dollar’ scheme, which gives N5 rebate for every $1 sent by Nigerians in diaspora to the country.

Previous foreign reserves movement showed that, on April 1, this year, the reserves stood at $34.85 billion, representing $404 million increase compared to $34.41 billion on March 11. Nigeria’s foreign reserve has dipped by $902.1 million since 16th April 2021, when the decline started, while year-to-date, the country’s reserve has dipped by about $1.021 billion.

The decline could be attributed to reports of a drop in crude oil exports from the country, which has been exacerbated by the decline in crude oil import by India, the biggest buyer of Nigeria’s crude oil and a nation still heavily hit by the COVID-19 pandemic.

An economic scholar and advisor to CBN, Adeola Adenikinju, said Nigerians must worry about the growing debt, stressing however that the country’s only option is to borrow. “We have very little options now, Adenikinju said, adding “we have a serious revenue problem in the country. We can’t even generate enough revenue to meet our expenditure. Our recent revenue couldn’t even cover debt obligations. If we improve tax, people will fight back.”

Adenikinju, however, stated that the country must find a way to move from dependency on the oil sector, stressing that the development would continue to expose the nation to volatility and shocks. 

He also raised concern over the impact of insecurity in the country, noting that the ability to attract needed investment in face of growing insecurity and the inability to pass the Petroleum Industry Bill cast doubts on improving revenue outlook in the country.

Adenikinju also said the loopholes in the contractual agreements in the oil sector is making the country loose out the benefits of higher oil prices, especially the production sharing contracts.

INDICATIONS that the government’s taste for further debt was yet to abate appeared last month when key officials of the Federal Ministry of Finance, including the two ministers shunned a seminar organised by a civil society group, ActionAid, on the disturbing debt profile.
At the dialogue with the theme: ‘Rising public debt in Nigeria and challenges of national development,’ experts called for a review of the country’s debt profile with more result-oriented strategies. The Finance, Budget and National Planning Minister, Mrs. Zainab Shamsuna Ahmed, stayed away; same as her Minister of State, Mr. Clem Agba. They didn’t send one of the permanent secretaries in the ministry to represent them.

Also conspicuously absent were the debt management focal officials like the DMO DG, Oniha, and the Director-General of Budget Office of the Federation, Mr. Ben Akabueze. Neither were the relevant committees in charge of loans at the National Assembly present to offer insights into what appears to be reckless borrowing with the sum of N25 trillion of the current new N36 trillion debt stock borrowed within the current administration.

The Head of Market Development at DMO, Mr. Monday Usiak, apparently conscripted at the dialogue to represent the Minister of Finance in a face-saving effort by Actionaid, could not make any policy statement on the subject matter, apparently because he was not briefed on what to say and only explained the burgeoning public debt as a fallout of Nigerians’ aversion to taxation payment.

The absence of key officials notwithstanding, the event went ahead with presentations and submissions led by the Lead Director of the Centre for Social Justice (CenSoJ), Mr. Eze Onyekpere, who traced the trend of borrowing in the country between 2010 and 2020, declaring that because of inherent leakages in the revenue-generating agencies, about 83 per cent of the revenue was being deployed yearly to service debts.

Onyekpere described the situation as despicable, explaining that against the country’s Fiscal Responsibility Act, Nigeria was borrowing to pay salaries and fund other non-essential spending like trips and parties, instead of infrastructure for which the loan was meant.

He warned against the use of GDP size of the country for borrowing, noting that when it is time to pay back, it will be taken from the revenue and not from the GDP. He advocated for a review in the fiscal fundamentals that allocate a percentage of revenue collection to some agencies such as the Federal Inland Revenue Service (FIRS) and the Nigerian Customs Service (NCS), saying it was not necessary.

His words: “Why do you allocate seven per cent of revenue collection to the NCS and four per cent of revenue generated to the FIRS? These two agencies have too much money to play with. That is why at the National Assembly, those over-sighting them see the committee as juicy. What the Federal Government needs to do is just treat them as every other revenue-generating agency. Let them collect revenue and remit 80 per cent of their operating surpluses to the Consolidating Revenue Account of the Federation.”

Onyekpere also said it was wrong for Nigeria to continue to grant reckless tax holidays and waivers to corporate bodies operating in the country in the face of the dire financial strait.

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