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Why are we still borrowing?

By Les Leba

The national debt burden, which was about $32bn in 2006 was regarded as excessive and unsustainable.  Consequently, we were encouraged to part with $18bn in order to cancel most of our external debt.  Inexplicably, just six years down the line, Dr. Ngozi Okonjo-Iweala, who as Finance Minister incidentally ‘midwifed’ the controversial debt payout in 2006, now confidently assures Nigerians that our current debt burden of about $45bn is nothing to worry about, since, at only 17%, it falls well below the critical debt to GDP benchmark of 40%!  The Coordinating Minister of the Economy is obviously unfazed that the average cost of servicing over N6 Trillion of these debts annually is in excess of 15% in place of 1 – 7% for such risk-free sovereign debts elsewhere.

Nonetheless, the Hon. Minister has advised that N25bn will be set aside from  monthly budget allocations into a sinking fund to service and ultimately repay our debts as and when due.  Curiously, the honourable minister has chosen to create a repayment fund rather than identify the actual cause of our burgeoning debt base, and drastically reduce the spate of ‘purposeless’ government borrowing.

Nigerians are naturally alarmed that the rapid debt increase over the last six years has not tangibly improved our infrastructural base, neither has it enhanced our social welfare.  What is patently evident, however, is that most of the $40bn current domestic debts were in fact incurred from Central Bank’s huge borrowings with treasury bills and the issue of bonds by the Debt Management Office (DMO).  Incidentally, since its inception, the DMO debt portfolio of N3.714 trillion is responsible for over 60% of total domestic debt, while CBN’s borrowings with treasury bills and bonds account for the balance.

While the object of CBN’s borrowing is targeted at taming the ever-present ‘ghost’ of excess liquidity (excess cash) in the economy, the DMO’s bond issues were initially targeted at establishing a benchmark for long-term borrowing and deepening of the market for government securities.  Subsequently, in response to critics of these expensive and non-impactful debts, the DMO began to include funding of budget deficits as part of the purposes for its borrowings.

Instructively, however, discerning Nigerians have doubted the claim of budget deficits in the recent past.  Such analysts argue that crude oil price has never fallen below budget benchmark in the last seven years!  In addition, crude exports have also on average generally exceeded budget benchmarks.

Government’s claims of substantial deficits, when actual incomes from productive revenue streams exceed approved expenditure budgets have become worrisome to analysts; a case in point is that of revenue expectations in budget 2012.  We recall that in spite of the budget benchmark of $72 per barrel, and output benchmark of 2.4mbpd, in reality, crude oil price has hardly fallen below $90/barrel, while output has not only been stable above budget benchmark but has in fact been reported by the NNPC to have exceeded 2.7mbpd for some months.

Fortuitously, also, the Federal Inland Revenue Service (FIRS) has reported that almost N2.5 Trillion has so far been collected as revenue between January and June 2012.  (See “FG earned N2.43tn from taxes in six months”, Punch of 24/07/2012, pg 23).

If this excellent performance is projected for the rest of the year, then, we may expect that internally generated revenue alone for 2012 may exceed the N4.8 Trillion aggregate expenditure vote in the 2012 budget!  In such event, the rationale for DMO’s borrowing spree becomes questionable, as it is inappropriate for the agency to borrow money for ‘undisclosed’ expenses, which have not been captured in the approved budget statement.

Indeed, the DMO’s borrowing binge in spite of apparently extant surplus funds becomes more bewildering when considered alongside additional monthly accruals from crude oil exports.  If earlier budgets are anything to go by, export crude revenue (even in times of unstable crude prices) has traditionally accounted for over 80% of government income,; in this event, we may realistically expect minimal additional inflow of over N4 Trillion (over $24bn) into the federal treasury this year.

In summary, therefore, total revenue expectations from the foregoing sources would be a total of N9.5 trillion, made up of N5 Trillion internally generated revenue, N4 Trillion from crude export and at least a minimum of N500bn from customs duties!!

Indeed, the above revenue estimate may still be a gross understatement, as crude prices and output have remained well above budget benchmarks this year, and consequently, crude export revenue could exceed $40bn!!

The component of about N1.5 trillion debt accumulated via treasury bills becomes more farcical when we recognize that the CBN self-inflicts the eternal scourge of excess liquidity which the apex bank turns round to mop up with borrowing cost often in excess of 15%!



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