With N2.14 trillion budgeted for debt servicing in the proposed 2019 budget, Nigeria will spend 24.3 per cent of the entire N8.83 trillion budget on debt financing, a PREMIUM TIMES’ analysis has shown.
This projection was made even as a slightly lower provision of N2.031 trillion was earmarked for capital projects, representing about 23 per cent of the entire budget.
Analysts are divided on the desirability of these provisions, as many continue to raise concerns around the sustainability of the nation’s debt in relation to its investment in infrastructure.
2019 Budget Proposal
President Muhammadu Buhari on Wednesday proposed a budget of N8.83 trillion for 2019 to a joint session of the National Assembly in Abuja.
A breakdown of the budget shows that proposed recurrent expenditure is N4.04 trillion; statutory transfer is N492.36 billion. There is a sinking fund of N120 billion, while capital expenditure is N2.031 trillion.
The budget was prepared on the assumption of $60 per barrel with crude oil production of 2.3 million barrels per day and an exchange rate of N305 to $1.
Other assumptions include a real GDP growth of 3.01 per cent and inflation rate of 9.98 per cent.
About a quarter of the sum (N2.14 trillion) will be used for debt servicing while capital expenditure is expected to gulp N2.031 trillion.
Analysts argue that the moves may not reflect well on the nation’s efforts to fix infrastructure and other developmental concerns.
The Nigerian government has however consistently said that the nation’s debt profile was nothing to worry about as it is sustainable, despite warnings by global financial institutions.
Speaking on the sidelines of the G20 Finance Ministers and Central Bank Governors meetings at the 2018 IMF and World Bank meetings in Washington DC in April, the immediate past minister of finance, Kemi Adeosun argued that Nigeria had nothing to fear as far as its debt burden was concerned.
“It is correct that debt levels in low-income countries is a threat but Nigeria is better described as a middle-income country,” Mrs Adeosun said. “The concern that has been expressed, and it’s a legitimate one, is that debt levels in those countries are at 55 per cent of GDP which is very high but Nigeria’s is at less than 20.
“So we are not one of the countries they have expressed concerns about. However, we will continue to manage our debt very very responsibly.
“We are at 20 per cent of GDP and we do not intend to grow it aggressively. We are doing well at the moment as debt rate to revenue is going down gradually as we replace debt with revenue and refinancing our debt.”
In August, the Debt Management Office (DMO) put the nation’s total debt stock (federal, FCT and states) at N22.38 trillion ($73.21 billion) as at June 30, 2018.
The debt office also said the federal government had borrowed N410 billion locally to finance the N9.12 trillion 2018 budget, which was assented to on June 19 by President Buhari.
DMO Director General, Patience Oniha, stated however that there was no foreign borrowing to support the 2018 budget because the National Assembly was yet to approve the 2018 borrowing plan at the time.
The 2018 budget is configured with a N1.643 trillion borrowing window, comprising N850 billion foreign component and N793 billion to be sourced locally.
In September, the Deputy Secretary-General of the United Nations, Amina Mohammed, expressed worries over the rising level of Nigeria’s debt, adding that the nation is now back to worrying levels of debt after the administration of former President Olusegun Obasanjo got Nigeria out of debt.
She said, “I think we really need to sit down and have a better conversation about all the tasks of a growing economy that needs to be inclusive; it needs to succeed because stability is needed more than ever today across our countries and where we are working.”
Before Mrs Mohammed’s intervention, the World Bank and International Monetary Fund, IMF, had warned of the worrying debt levels in African economies.
With the new proposal to service debts with almost a quarter of the 2019 budget, analysts have divergent opinions about the nation’s debt burden and its investment plans on capital projects.
For Lanre Suraj, head of the Human and Environmental Development Agenda (HEDA), debt servicing is in itself not a problem but the accumulation of such debt.
He said, “The debt, if as a consequence of previous government developmental programs funded by creditors and contractors due to insufficient funds at the disposal of the government, is tantamount to the payment of a judiciously utilised advanced fund. Some of the funds used for debt servicing could also be generated from the initiated projects.
“Paying outstanding debt also improves the credibility of the country and increases the confidence of contractors and creditors to invest in the country.”
He argued however that the means by which the debts were accumulated could defeat the essence of the debt servicing.
“We, therefore, must interrogate the debts accumulated and nature of the debt to understand and situate consequences of actions of the past,” he explained.
Jide Ojo, an analyst and public affairs commentator, said budgeting in Nigerian system is a mere “hollow ritual”. “I cannot remember if our previous budgets had ever been fully implemented.”
He, however, attributed the huge amount budgeted for debt servicing as a ripple effect of the huge debt the government has accumulated.
“Considering the huge amount earmarked for debt servicing, it will be so because of our country’s huge debt profile. Our debt portfolio under this administration has almost doubled what it inherited in 2015,” he said.
Auwal Musa, (Rafsanjani), Executive Director of Civil Society Legislative Advocacy Centre (CISLAC), expressed worries over the budgetary allocation for capital expenditure.
He said the nation may not realise half of its projection on capital projects.
“This is because only (N)2.031 trillion is being proposed for capital expenditures and going by the poor budget implementation and corruption and inability to reduce the cost of governance, we may not achieve half of this capital expenditure.”
The activist also expressed concerns over the nation’s debt profile, saying the plan would affect the nation’s investment in key areas of human development like health and education.
“Again with too much debt incurred under this administration, both domestic and international, we will be spending a lot to service debt,” he explained. “Therefore, by implication, key areas that would benefit the poor would not be a priority, like health and education.”