Amidst the projection of Nigeria’s public debt to hit N50trn in 2023 as the federal government plans the additional borrowing of N12trn, a financial analyst and CEO of Cowry Assets Management, Johnson Chukwu, has urged the government to review the sources of its funding for the capital project so as not to plunge the country into economic crises.
Mr Chukwu during an interview on Television Continental stated that in the face of burgeoning debt and the country yet to realise the benefits of past borrowings, there is an urgent need for the private sector to take over funding and construction of critical infrastructures.
He noted that the use of 80 per cent of government revenue to service debt interest was an indication that the infrastructures are not performing optimally to justify their investments.
The cost of domestic debt service of the Federal Government stood at N977.03 bn at the end-June 2021, representing an increase of 8.75% compared to N898.39 bn at the end-June 2020.
This was disclosed by the Financial Markets Department of the Central Bank of Nigeria in its half-year activity report for 2021.
The Federal Government domestic debt stock outstanding witnessed an upward trend in the first half of 2021, compared with the corresponding period of 2020.
As a result, the cost of debt service increased by 8.7%, owing to the increase in Federal Government borrowings to augment its revenue shortfall.
The Federal Government augmented its revenue shortfall with public financing. The stock of FGN domestic debt outstanding amounted to N17,631.80 bn at the end-June 2021.
While stating that borrowing to fund infrastructure is not a major problem, Chukwu said its non-reflection as profitable assets are costing the country.
He said: “We are all concern as Nigeria is accumulating lots of national debt, you can’t say that the number of highways, standard gauge railways, seaport and airports that have been built have led to growth in revenue that can be attributed to the capital build-up that will catalyse into quicker and more efficient economic activity.
“Unfortunately, we are getting to a point where we will be borrowing to service the national debt, is the concern Nigerians have. Some of us have advocated that we should review our strategy for funding government infrastructure by bringing in private capital. We can’t afford to continue to grow our debt profile at the rate we are going, given the weakness of the federal government revenue.
He added that with the 80 per cent revenue used to service debt, the government would find it difficult to fund basic social goods to take care of education, health and other social facilities like security. “Where will it have money for all this social infrastructural development? If you can see clearly, at this point, our debt has gotten to a non-sustainable level.”
He queried that since the government does not spend any of its revenue on capital infrastructure, the government should concession infrastructures that are commercially viable to the private sector.
“With the current trend of interest payment, the borrowing or servicing is crowding out critical investments in sectors that we need to make investments in. There is nothing wrong with borrowing as it is for investments in a critical sector of the economy, however, the investment you are borrowing should be such that the return on that investment or cash flow from investment should be enough to pay the amount you have borrowed.”
He pointed out that since the Nigerian government and government in most parts of the world are adjudged not to be efficient utiliser or deployer of economic resources, thus not the best manager of economic resources, “let us leave it to the private sector if we must borrow to build the railways, why not make concession for them to borrow and build it because they will do it at a more cost-efficient level than the government. When it comes to procurement, there is a lot of wastages on the side of the government, which the private sector can curtail.”
While the existing borrowing plans, from the proposed budget, already points to significant borrowing plans over 2022FY – NGN4.45 trillion domestically (including maturing Treasury bonds and promissory notes) and NGN2.71 trillion (including maturing Eurobond) – the expected revenue underperformance points towards a need to borrow even more according to analyst at Cordros research.
The Experts said: “We anticipate that most of the borrowing will have to be done domestically given: (1) tighter liquidity conditions in global markets as policy normalisation commences, (2) consternation regarding the pre-election period resulting in yield expectations that will likely be unpalatable for the fiscal authorities, (3) tight liquidity domestically as the CBN continues to utilise unconventional monetary policies to achieve its overarching goal of price stability – elevated liquidity requirements and CRR debits –, and (4) increased sub-national and corporate issuances as issuers frontload borrowings prior to a hike in yields, as already witnessed at the tail end of 2021.
“All these points towards an elevated yield environment in 2022.”
Daily Trust reports.
