Nigeria’s debt service cost exceeds revenue – DMO

Nigeria spent more money servicing debt than what it earned between January and April, this year, the Debt Management Office (DMO), has said.

The cost of debt servicing has been of concern as the Federal Government spent more on debt servicing in the first four months of the year than the revenue it collected, DMO said, adding that the debt servicing bill increased by 109 per cent between last December and this March, rising from N429 billion to N896 billion.

According to data obtained from the DMO, this amounted to N3.83 trillion on debt servicing payments in 15 months.

Director-General, DMO, Mrs. Patience Oniha, told the News Agency of Nigeria (NAN) yesterday that the level of new borrowing to meet these needs are often captured in the annual Appropriation Acts and Medium-Term External Borrowing Plan. Although it looks obvious, one of the things omitted in the analysis by experts is that new borrowing will automatically translate to higher debt stock and debt service levels,” she said, pointing out that Nigeria needs to earn higher revenue and manage its debt profile more efficiently.

The DMO chief wondered how much revenue Nigeria was generating, saying that statistics showed that relative to other countries, Nigeria’s revenue was low.

She said the World Bank’s World Economic Outlook for 2020 showed that Nigeria with a revenue to GDP ratio of 6.3 per cent was ranked at 194 out of 196 countries covered, adding that “strong and comparable revenue base will reduce the need for relatively large amounts of new borrowing as Nigeria has witnessed, and will also reduce the debt service to revenue ratio”.

While urging more stakeholders to focus and pay attention to the need to improve revenue generation, Mrs Oniha stressed the need to grow revenue significantly in order for debt to be sustainable.

“It is advisable for the media and public analysts to begin to focus attention on Nigeria’s revenue generation. Revenue is the way to go and that is how countries develop and use borrowing to augment revenue shortfalls now and again.

“Nigeria has been running budget deficits for decades; it is about time to shift to balanced budgets and even surplus budgets,” she said, urging the government to take steps to address the recurrent issue of petroleum subsidy payment so as to further reduce borrowings.

She said the DMO has continuously maintained its position on the need to raise revenue, saying one issue to be addressed is the petrol subsidy which has significantly increased annual budget deficits and ultimately increased the level of new borrowings and the public debt stock.

“There is a vital need to ramp up crude oil production and end crude oil theft and pipeline vandalism to meet oil revenue targets, especially in the light of rising crude oil prices.”

She added that other structural issues such as insecurity, inflation, infrastructural deficit and foreign exchange shortages adversely affecting the business environment needed to be resolved.

She said doing that would create an avenue for efficient tax collection and a wider tax base.

Mrs. Oniha said the DMO’s role in debt acquisition and management processes is essentially advisory. “The DMO plays an advisory role to government in relation to public debt which covers new borrowing, debt negotiation and debt management strategy, she said, adding that the yearly Debt Sustainability Analysis and the four-yearly Medium-Term Debt Management Strategy are the tools with which the DMO advises government on policy issues.

On debt servicing, she said the DMO Establishment Act, 2003 mandates the institution to maintain a record of public debts and service the debts, saying the DMO actually prepares the Debt Service projections for the Medium Term Expenditure Framework (MTEF) and yearly budgets so that debt is serviced promptly.

Mrs. Oniha faulted Nigerians attacking the DMO over debt management, saying they don’t understand the legislation and regulations governing borrowing and public debt.

“It is strongly recommended that the public is familiar with the provisions in the DMO Establishment Act, 2003 and the Fiscal Responsibility Act, 2007,” she said.

“Public debt has grown over the last years as the government borrowed to meet major revenue shortfalls, increased spending on security and infrastructure, as well as funding on health due to the COVID-19 pandemic.

Minister of Finance, Budget and National Planning, Mrs Zainab Ahmed, also decried the huge gap between revenue and debt servicing, while presenting the draft MTEF.

Mrs. Ahmed put actual revenue and debt service for January to April 2023 at N1.63 trillion and N1.9 trillion.

(Nation)