FG Anchors Increased Borrowing on Poor Revenue, Recession

The Nation’s borrowing has been increasing in recent times because of dwindling revenues as well as the recent recession that the country slumped into, the Federal Government has said. This explanation was contained in a document entitled: Nigeria’s Public Debt – Some Recurring Issues’, put together by the Debt Management Office.

In the document, the DMO also explained that before going for commercial loans (which have higher interest rates), the Government usually explored cheaper bilateral and multilateral sources such as the World Bank. According to the DMO, Nigeria’s income has been low compared to other economies in sub-Saharan Africa, thus making borrowing inevitable.

The DMO said, “The fact is that Nigeria is generating revenue commensurate to the size of its economy, which is confirmed by the tax revenue to GDP ratio of only six per cent. Nigeria’s tax revenue to GDP ratio at six per cent ranks among the lowest in the world.

“According to the World Bank’s April 2017 publication on Regional Economic Outlook, Sub-Saharan African Fiscal Adjustment and Economic Diversification, the sub-Saharan average tax revenue to GDP was 17 per cent; emerging economies 26 per cent; and advanced economies, 36 per cent.

“This speaks to the need to diversify the economy and generate more revenues from non-oil sources, which should reduce budget deficits and the level of new borrowing.”

It added, “The Government is borrowing at this time due to the sharp drop in revenue occasioned primarily by the fall in crude oil prices and worsened by the recession, which constrained growth in non-oil revenues as the economy plunged into a recession.

“These necessitated increased Government’s spending to stimulate the economy and bring it out of recession. This is consistent with the practice in most parts of the world where Governments would typically increase their level of spending to induce economic recovery.

“This practice was widely used by the advanced countries during the economic recession triggered by the global financial meltdown in 2008. Although Nigeria has come out of recession within a short period, it should be noted that the Government’s total expenditure as a percentage of the GDP is very low.”

It added that while spending to stimulate the economy, the present administration had channeled borrowing to capital projects (power, roads, and rails) in order to create jobs and provide enabling environment that would support private sector investment in various activities such as agriculture and manufacturing.

On multilateral sources, the DMO said, “Perhaps, it would be useful to state that when planning external borrowing, the Government would usually exhaust all the options for raising capital externally from relatively cheaper funding sources, like multilateral and bilateral, before considering commercial sources such as the International Financial Markets. The Government’s shift towards external financing rather than more domestic borrowing will have very significant direct and indirect macro-economic benefits.”

The Government recently raised $3Bn from Eurobonds to support the implementation of the 2017 budget.


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