The Federal Government says it will not make progress unless it borrows more to fund critical infrastructure in the country.
Minister of Finance, Budget and National Planning, Mrs. Zainab Ahmed stated this on Thursday during the maiden edition of the weekly special ministerial media briefing, organised by the Presidential Communications Team.
She said though the country had expanded its borrowing, it was still below 25 per cent debt-to-GDP ratio and within borrowing limit.
She said: “There is a lot of sensitivity in Nigeria about the level of borrowing by the government and it is not misplaced. And I said earlier that the level of borrowing is not unreasonable, it is not high.”
“The problem we have is that of revenue. So, what we need to do is to increase revenue to be able to enhance our debt to GDP obligation capacity. If we say we will not borrow and therefore not build rails and major infrastructure until our revenue rises enough, then, we will regress as a country. We will be left behind, we won’t be able to improve our business environment and our economy will not grow. So, it is a decision that every government has to take.”
Mrs. Ahmed’s argument was however faulted by the former President, Chartered Institute of Bankers of Nigeria, Okechukwu Unegbu, who said the Minster failed to give details of the key infrastructure where the planned new loans will be channeled into.
He said Nigeria has borrowed so much money and debt service cost has continued to rise, warning that “without proper naming of the projects to be funded, the loans face the risk of diversion.” He said no matter what anyone says, Nigeria remains a poor country weighed down by massive debt obligations. He lamented that “from inflation to interest rate, almost all economic indicators are negative.”
Against Unegbu’s argument, Mrs Ahmed insisted: “Our assessment is that we need to borrow to build our major infrastructure. We just need to make sure that when we borrow, we are applying the borrowing to specific major infrastructure that will enhance the business environment in this country. “Again, we all have to work not just the federal government but state governments to increase our revenue to enhance our debt service obligations.
”We also have to make sure that when we are choosing the projects, we are choosing carefully the ones that will enhance the business environment so that more revenue yields come into the treasuries of the country”. Giving an update on loans from development partners, Ahmed said: “We closed 2020 by being able to realize $3.4 billion from IMF, $600 million from AfDB.
“We were not able to conclude our negotiation with the World Bank and also with the Islamic Development Bank. Even with Islamic Development Bank, we signed for the last tranches, we started negotiation with the World Bank with the list of about 10 requirements that we needed to address and we had addressed those 10 requirements but, the World Bank’s position is that we have not sufficiently addressed the requirements relating to having a single exchange rate.
”Their view is that despite the fact that we have adjusted the official exchange rate from N305 to N360 and we further moved to I&E (Investors and Exporters) or the NAFEX (the Nigerian Autonomous Foreign Exchange Fixing) window, and as we speak, the federal government inflows and outflows are monitized at the Nafex window rate. So, we feel we have met that requirement but the World Bank is saying that we have to close that gap between the black market and NAFEX window.
“Our point is that it is not what you do overnight. It’s not that you wake up and make a pronouncement and that happens. It’s something that you have to do over time taking several measures and working systematically for it to happen. So, we are still pushing our view with the World Bank and we hope to convince them that this requirement has been met and that they should now give us approval to go ahead and release the $1.5 billion that we have been discussing with them.
The World Bank in 2020, gave us approval for a number of facilities.” Mrs. Ahmed listed some of the facilities to include the $500 million for metering system for the distribution network, $750 million for the power sector recovery programme and several other facilities that are on table with the World Bank that were approved during the course of the year 2020.
On the Chinese loans taken by the country and consequences on debt servicing, Director-General, Debt Management Office (DMO), Ms. Patience Oniha, said it is useful to look at the budget for each year; look at the revenues, look at the expenditure, if you take out the new borrowing, really, what will the size of the budget be? How much can government spend?
”So, there will be a lot of capital projects that are affected. We need to look at it that borrowing, even as you see it in the budget every year, it is used to support infrastructural development. Otherwise, there will be a challenge.
”Secondly, let me add. I think we’re going through a process where we need to borrow now. Let’s just say in the short to medium term, to get the economy going, while we also expect revenues to improve. “So, in terms of the pressure of debt service, by the time the revenue comes up, that should be lower, but there are some things you need to do now, to ensure that revenue comes up.
Mrs Ahmed, added that the total borrowing of the country as at 31 of December,is 21.6 per cent of the GDP, saying “so, if we were not looking at adding the other category of loans that I mentioned, we don’t even need to increase that at this time. As at 2019, the debt to GDP ratio was 19.2 per cent so only two per cent was added.”
On the impact of rising crude oil price, she said, “the more revenue we realize out of the budget, the less we borrow. As we see the oil price rising and provides us more revenue, it provides us some reliefs. We will be able to reduce our borrowing so, it is a positive thing for us and also, we have a provision in the 2021 budget for immunization.
”We are already releasing money to the health authority to start operation in the first batch of vaccines that is going to arrive the country in one week. But what we have in the budget is not enough, so we are working with the health authorities to provide a plan that will be taken to the President for approval and to be taken to the National Assembly as a supplementary budget specifically for COVID-19 vaccination”, she said.
Mrs. Ahmed said the Federal Executive Council (FEC) will soon approve a policy mandating Ministries, Department and Agencies (MDAs) to buy locally manufactured vehicles.
She said as part of measures by government to control inflation in the country, it has already reduced duties on imported vehicles from 35 to 5 per cent with a view to lessening the high cost of transportation, which in turn, impacts on inflation. According to her, patronizing locally made vehicles will mitigate against dumping due to reduced duties.
The minister maintained that the federal government is committed to purchasing locally made goods and vehicles and would engage with state governments to ensure that they do same so as to encourage local production. On the new import duty policy, she said that the Nigeria Customs Service has already directed all its outposts to commence its implementation. She added: “Nigerian Customs has reviewed these guidelines and has notified all its operational posts to start implementing the new rates. So, it has taken effect.
”We’re hoping to also engage the states and encourage the states to take similar measures. It is important for us because we want to make sure the automotive industry survives and grows. “The Federal Ministry of Industry, Trade and Investment has just finished a review of automated policy, which has been running now for seven years. I must say that the policy has not been reviewed before. So, this is the first review that is being done and the essence of the review is to see whether it has achieved the designed targets.
