Nigeria’s finance minister, Kemi Adeosun on Sunday urged citizens’ understanding as government emarks on an accerlerated borrowing to fund growth and infrastructure.
“Once growth is restored, we’ll begin to systematically reduce our dependence on borrowing,” Adeosun stated, briefing journalists on the outcomes of the week-long meetings of the International Monetary Fund (IMF) and the World Bank in Washington.
Substantial drop in oil incomes, has seen government authorities struggle to implement the record budgets for two straight years and meant they would accerlate borrowings to spend the fragile economy to a rebound. The situation has ballooned public debt to N19.16 trillion, in June, with up to N7.1 trillion debt incurred in the last two years, according to the figures from th Debt Management Office (DMO), and mostly used so far to fund recurrent.
Government plans to raise as much as $5.5billion of Eurobonds before the end of the year to fund capital projects and replace local-currency debt raising funds from Eurobond sales this year alone to more than $7billion.
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Some $1 billion Eurobond was floated earlier in the year.
Responding to wide concerns on excessive borrowing which was also louldy echoed by the Bretton Woods lenders at the Annual Meetings, Adeosun argued that borrowing is quite appropriate at this time, considering the enormous economic challenges which the country faces. Adeosun briefed alongside Godwin Emefiele, governor of the Central Bank of Nigeria (CBN)
Her words, “If you think back to the problem we face, our principal source of revenue plummeted by up to 85 per cent, so we had no choices. You either cut public infrastructure massively, which should have led to massive job losses or you borrow in the short-term, until you begin to generate revenue.
“We felt that laying off thousands of persons was not the best way to stimulate growth. Also,when we came into office, about 27 states could not pay salary. If we had allowed that, situation to persist, we would have been in depression by now.
“So, we took the view as a government that the best thing to do was to stimulate growth and spend our way out of trouble, get the state governments to pay salaries, make sure federal government pays and iinvest in capital infrastructure.
“Once growth is restored, you begin to systematically reduce your dependence on borrowing,” the minister assured.
She argued that the government, by borrowing is trying to do is create enough headroom to invest in capital projects that the country desperately needs.
“I do not think there is any Nigerian that will say we do not need to invest on power, do the roads, and that will not want us to fix 17 million housing deficits, build rails and they will generate economic activities and jobs. We do not need to continue hobbling as a poor nation.
“It is a strategic decision that we have to make. I want to assure you, this government is very prudent about debt. We do not borrow recklessly. We have no intention of bequeathing unserviceable debts Nigerians, ” the minister explained disclosing that that the government was working with the National Assembly to refinance some of government’s maturing treasury bills.
The minister emphasized that Nigeria’s debt to GDP ratio is one of the lowest in the world but assured that government is prudent and will ensure that the monies are utilised for set purpose.
“We are at 19 per cent, but most advanced countries have over 100 per cent. I am not saying we need to move to 100 per cent, but I am saying we need to tolerate a little more debt in the short-term to deliver the rails, the roads and power so as to generate economic activities, jobs, revenue, which would be used to pay back the debt.
“But I assure you that this government is very prudent around debt. We don’t borrow recklessly and we have no intention of bequeathing unserviceable debts on Nigerians.
Adeosun also emphasized that the poor tax compliance by citizens was contributing to low revenues and helping gowernment’s argument to embark on the kinds of excessive borrowing that it has resorted to presently.
“We are talking about tax and what we are saying is that people should be aware of their responsibilities to their nation,” she stressed.
Continuing she added, “The solution to borrowing in Nigeria is that we must pay tax. If you pay the taxes properly, there is no need to borrow. Of course, there is the responsibility on the part of government to be more responsible and efficient. We are really focusing on this. We are trying to find ways to cut cost. Fundamentally we must invest. We don’t have the power we need, we don’t have the roads yet and there is a lot of money required to fund these projects.
” If we are able to move our tax to GDP from just six per cent, where it is now, to 10 per cent, it would significantly reduce the amount we need to borrow. And that would have a wider effect on the economy, reduce borrowing and bring down interest rate. It will also create head room for the private sector to borrow, because they are currently being crowded out.
She explained that the luxury tax planned by the Federal Government was being finalized now, because it cuts across the ECOWAS. There is a legal processes you must go through, including the customs union to actually vary the specific taxes.
“Whether taxing the rich will increase public revenue or not, it is all about public revenue to which they are obligated for public services. In any tax system, the burden must be borne by anybody whose income allows to bear it, so those with higher income should by definition, bear a greater part of the burden,” the minister also noted.
According to Adeosun, the challenge in the country is not just that the system needs to be overhauled, it is also that people are not complying and this is because there is no consequence.
She said with the newly introduced tax amnesty has been a success, disclosing that a number of approaches from high net worth people asking that they allowed time by their state governors to comply.
“I have encouraged every governor that everyone who comes to declare should be given enough time to pay up. This is because the amount of tax that they would have to pay is big. We are doing this because we don’t want a situation where people who want to pay would lead to stifling economic activity.
On state borrowing, she refuted claims that states were borrowing arbitrarily and assured that the federal government is regulating them to ensure that they keep to debt levels which are sustainable.
She said, ‘Any state government has to come to us to get an approval to borrow. We perform Debt Sustainability Analysis and if the repayment is more than 40 per cent of their revenue, we turn it down.
“So, many people are talking of how many loans we are approving, they don’t talk about how many loans we are turning down. Many do not go through and we are constantly monitoring state governments to ensure that the debts that they take on is sustainable.
“The problem with some of the states that have debt problems are legacy issues that were there before they came in. But since, we came in, we have been very strict, trying to make sure states do not borrow more than they can service.
On youths and employment, the minister explained that the government is tackling unemployment, especially through the YOUWIN program and is just about to appoint an fund manager.
Onyinye Nwachukwu, Washington DC
