FG, States should stop the loan frenzy – Punch Newspapers | Vette Leader

NIGERIA’s unbridled greed for debt reached a critical point when the country entered the World Bank’s International Development Association’s top 10 list of borrowers. The prognosis is frightening and portends dire consequences unless the President, Maj. Gen. Muhammadu Buhari (retd.), and state governors rein in their fiscal indiscipline.

The World Bank’s audited financial statements for fiscal year 2021, known as the “IDA Financial Report,” showed that Nigeria, with a debt stock of US$11.7 billion (IDA) as of June 30, 2021, ranked fifth on the list by The Audited Financial statements for the year 2022 showed that Nigeria moved up to fourth place in the list with US$13 billion as of June 30, 2022.

The country took on Vietnam’s fourth-largest debtor position with an accumulation of about US$1.3 billion in IDA debt in one fiscal year. Currently, over 90 percent of all federal public revenue is spent servicing debt, a recipe for disaster.

Nigeria is on a fiscal cliff. With debt service exceeding retained earnings by up to N310 billion in the first four months of 2022, the debt is clearly unsustainable. Total spending for 2022 was estimated at N17.32 trillion, with a pro rata spending target of N5.77 trillion at the end of April.

“Actual expenditure as of April 30 was N4.72 trillion. Of this amount, N1.94 trillion was for debt servicing and N1.26 trillion for staff costs, including pensions,” said the Finance, Budget and Finance Minister Planning, Zainab Ahmed, citing the Medium Expenditure and Fiscal Strategy Paper.

The spree is frightening: the government has been borrowing from the central bank through “means and means” to pay salaries, printing money at record speed. Normally intended for emergencies, the Buhari regime has turned it into its ATM, which it raids at random. Externally, it draws on all available credit, including potentially deadly Chinese unstructured loans.

Latest figures show that CBN’s total borrowings increased from N17.46 trillion in December 2021 to N19.01 trillion by April 2022, an increase of N1.55 trillion in four months, CBN says. The World Bank again warned on Wednesday that Nigeria faces an existential threat, citing among others the N2.45 trillion the government borrowed from CBN in six months.

According to the Debt Management Office, the country’s total debt was N41.60 trillion as of March 2022. This includes only the debt of the federal, 36 state governments and the federal capital territory.

In a 2021 report titled “The Perils of Deficit Monetization in Nigeria,” London-based firm Capital Economics found that over the past six years, an average of 55 percent of Nigeria’s annual budget deficits have been financed by the CBN. “Many of the problems plaguing the Nigerian economy – from high inflation to a persistently overvalued currency – are related to the government’s continued reliance on the central bank to fill fiscal funding gaps,” it said.

The World Bank warned the government in November 2021 against financing deficits by borrowing from CBN on “ways and means” and said it was putting pressure on the country’s spending, including increasing debt-servicing costs.

Frighteningly, not only is the central government in debt, but the states are also borrowing at an alarming rate, like the central government, without any significant public infrastructure project to show.

Instead of borrowing for critical projects, the government should liberalize railroads and ports and privatize all state-owned oil and gas companies. Holding on to the loss-making refineries, depots, pipelines and retail outlets is wasteful, inefficient and constrains the economy. It stifles investment and job creation. Buhari should privatize them before the end of his term. Plunging money into the doomed Air Nigeria project is also counterproductive.

The regime has failed to capitalize on these and other low-hanging revenue opportunities, opting instead to deplete fiscal buffers. From $35.7 million in June, the excess crude account is now down to $376,655.

Buhari should stop the binge and reverse the country’s rushed credit rating. Nigeria’s sale of US$4 billion in Eurobonds last September drew criticism from economists for aggravating the country’s fragile debt position, as the loans are unlikely to be used productively in the long term. Borrowing in foreign currency in connection with a devaluation of the naira increases the risk to the economy as the repayment will be in foreign currency. Inflation has also eroded the value of the naira, significantly reducing the purchasing power of citizens and driving millions into poverty and misery. The need for policy change is becoming ever more urgent.

States should cut costs, invest in rural and basic infrastructure, and develop self-sustaining subnational economic policies to attract investment.

With the energy market in turmoil, inflation rose to 18.6 percent in June from 17.71 percent in May. It was the fifth consecutive increase in five months and the highest in 65 months.

The oil and gas sector is in chaos. The opaque gasoline subsidy bill could reach N6 trillion this year if crude oil prices rise and the naira continues its free fall. Crude oil theft is happening on an industrial scale and amounts to $1.9 billion in monthly losses, officials say. An average of 400,000 barrels of crude oil are stolen every day, says the State Secretary for Petroleum Resources. Nigeria has thus missed its OPEC production quota of 1.83 mbpd. Gas supplies – for industrial uses and cooking gas – have also been hit by prohibitive prices.

Adding to its problems, the country is unable to take advantage of higher oil prices resulting from the war between Russia and Ukraine to stem its flow of revenue and meet fiscal obligations. The Nigerian Economic Summit Group and the Nigerian Employers’ Consultative Association recently warned that the economy is on the brink, reeling from rising debt and debt, inflation, widespread uncertainty and the foreign exchange crisis.

The President and 36 state governors must pull the nation out of the debt trap, stop waste and slash public spending, implement transformative economic ideas and tap natural resources to boost manufacturing, job creation and exports.

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