Chairman of the Senate Committee on Foreign and Local Debt, Senator Shehu Sani (Kaduna Central), stated this Thursday during the committee’s meeting with the Debt Management Office (DMO), when the agency’s management appeared before the
committee to defend the federal government’s borrowing plan under the 2016-2018 Medium Term Expenditure Framework and Fiscal Policy Strategy (MTEF/FPS).
Sani frowned on a situation where government officials applied for local or foreign loans under the guise that the money would be used for viable projects only to divert it to other uses without anything to show for it.
According to him, it was irresponsible for anyone to obtain loans without deploying it to projects meant to add value to the lives of the citizenry, thereby accumulating debt, mounting interest charges and penalties for successive administrations.
Sani, who was echoed by another member of the committee, Philip Gyunka (Nasarawa North), called on the federal government to put punitive measures in place to severely punish people found culpable.
They believed that the accumulation of misapplied debt has continued because nobody has been punished for obtaining a loan without applying it for the purpose for which it was meant, noting that it was irresponsible to borrow money and fail to service it.
This, they added, constitutes a huge burden for a new occupant of the office and should not go unpunished.
Sani had at a recent sitting of the Senate canvassed the need to make debt service compulsory, failing which government officials should be adequately punished.
During his presentation, the Director General of DMO, Dr. Abraham Nwankwo, revealed that Nigeria had lost as much as $16 billion to the drastic fall in the global price of crude oil since 2014.
Nwankwo, who put the nation’s debt at $64 billion, said Nigeria’s debt profile was not unhealthy for the economy, explaining that the N1.2 trillion domestic borrowing and N635.88 foreign borrowing proposed for the 2016 budget under the MTEF, was sustainable.
According to him, 84 per cent of the country’s entire debt profile is made up of the local component while foreign loans account for 16 per cent of total debt, adding that Nigeria needs to spend $25 billion per annum in the next 10 years in order to address its infrastructure deficit.
He also disclosed that debts owed local contractors by the government were not part of the domestic debt itemised in the MTEF, because they are operational debts.
He added that local contractors’ debt arose from the activities of federal agencies through the implementation of capital projects.
“Ordinarily if the implementation of the budget is followed to the letter, there is no reason why there should be local contractors’ debt because it is already in the budget.
“We have been sensitising Nigerians that we need to do better to raise more revenue from internal sources because our tax to GDP ratio is very low compared to countries in our debt bracket; their tax to GDP ratio is about 18 per cent, whereas for Nigeria it is about 6 per cent, which means that we have not been effective at collecting taxes to reflect the size of our economy.
“This has implications for debt service. Certainly there is need to be careful when we borrow, even though there is space for us to do so, but we need to relate debt service to revenue.
“The solution is that we have a big gap to fill because when we move upwards from the 6 per cent tax to GDP ratio, we will have a lot more money to solve our problems including servicing our debts.
“For now, our debt service to GDP ratio is still very low but we are optimistic because there is room to raise tax collection from the existing level of economic activities,” he explained.
On the proposed borrowings for the 2016 fiscal year, the DMO boss said the government’s projections were in the right direction.
He said: “Even before the collapse of oil prices, it had been estimated, more than five years ago, that Nigeria needed a minimum of $25 billion per annum in the next 10 years to enable it to close its infrastructure gap.
“That has been established by all relevant experts and institutions. In addition, the collapse of oil prices by our own estimates shows that public revenue from oil dropped by about $16 billion since 2014.
“In this type of situation, what a responsive government should do, and which is what our government is doing, is to make sure that it counteracts the decline in revenue.
“Borrowing is being done to achieve a positive impact on the economy, it will lead to growth, creation of employment, and build solid capacity for the future which will help us to diversify our economy.
“What the government is planning to do now is to explore at least five out of the 34 solid minerals that we have. We will develop and process them for export.
“From the Debt Management Office’s perspective, the MTEF/FPS as presented to the National Assembly, is perfect for the times and a good recipe for dealing with the challenges of the collapse of oil prices and the need to rapidly develop and diversify the economy and build infrastructure.”
After his presentation, the committee acknowledged the federal government’s initiative to fund the 2016 budget from non-oil revenues.
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