The Debt Management Office, DMO, has issued a strong warning to the federal government not to borrow more funds.
The advise comes following reports that the administration of Bola Ahmed Tinubu is planning to borrow more funds to plug the shortfall in revenue to find this year’s budget.
Muhammadu Buhari, his predecessor has been seriously criticized for over-borrowing, raising the country’s total debt stocks close to N50 trillion before his exit from government last month.
His government justified the huge debt on the need to plug infrastructure deficit in the country.
But the Debt Office said on Monday in Abuja that the debt to revenue is already too high, noting that over 75 percent of the nation’s revenue this year will be used to service debt.
To avoid this, the DMO said government should seek other ways to generate revenue, including expanding the tax net, adopting the public/private partnership model for the funding of critical infrastructure, sale of government assets to generate revenue, amongst others.
The DMO recommends the following:
“Although the Baseline analysis projects Total Public Debt-to-GDP ratio at 37.1 percent for 2023 indicating a borrowing space of 2.9 percent (equivalent of about N14.66 trillion) when compared to the self-imposed limit of 40 percent, it is recommended that this should not be used as a basis for higher level of borrowing as was the case in the 2023 Budget.
This is because the outcome of the Shock Scenario, which is more realistic in the circumstances, exceeded the self-imposed limit.
“The projected FGN Debt Service-to-Revenue ratio at 73.5 percent for 2023 is high and a threat to debt sustainability. It means that the revenue profile cannot support higher levels of borrowing. Attaining a sustainable FGN Debt Service-to-Revenue ratio would require an increase of FGN Revenue from N10.49 trillion projected in 2023 Budget to about N15.5 trillion.
“With respect to expansion in fiscal deficit, there is need to strictly adhere to the provision of extant legislations on Government borrowing, especially the Fiscal Responsibility Act 2007 and Central Bank of Nigeria Act, 2007 as it relates to Ways and Means Advances, in order to moderate the growth rate of public debt.
” There is urgent need to pay more attention to revenue generation by implementing far reaching revenue mobilization initiatives and reforms including the Strategic Revenue Growth Initiatives and all its pillars with a view to raising the country’s tax revenue to GDP ratio from about 7 percent (one of the lowest in the world) to that of its peer.
” Government should encourage the private sector fund infrastructure projects through the Public-Private Partnership schemes and take out capital projects in the Budget that are being funded from borrowing, thereby reduce budget deficit and borrowing.
” Government can reduce borrowing through privatization and/or sale of Government assets.”
In march this year, the DMO predicted that the total debt could rise to N77 trillion by end of May.
