The
national debt burden, which was about $32bn in 2006, was regarded as
excessive and unsustainable. Consequently, we were encouraged to part
with $18bn in order to cancel most of the external debt. Inexplicably,
just six years down the line, Dr. Ngozi Okonjo-Iweala, who as Finance
Minister incidentally shepherded the controversial debt payout in 2006,
now confidently assures Nigerians that our current debt burden of about
$45bn is nothing to worry about, since, at only 17 per cent, it falls
well below the critical debt to the Gross Domestic Product benchmark of
40 per cent! The Coordinating Minister of the Economy is obviously
unfazed that the average cost of servicing over N6tn of these debts
annually is in excess of 15 per cent in place of 1 – 7 per cent for such
risk-free sovereign debts elsewhere.
Nonetheless, Okonjo-Iweala has advised that N25bn
will be set aside from monthly budget allocations into a sinking fund to
service and ultimately repay our debts as and when due. Curiously, the
minister has chosen to create a repayment fund rather than identify the
actual cause of our burgeoning debt base, and drastically reduce the
spate of ‘purposeless’ government borrowing.
Nigerians are naturally alarmed that the rapid debt
increase over the last six years has not tangibly improved our
infrastructural base, neither has it enhanced our social welfare. What
is patently evident, however, is that most of the $40bn current domestic
debts were in fact incurred from the Central Bank of Nigeria’s huge
borrowings with treasury bills and the issue of bonds by the Debt
Management Office. Incidentally, since its inception, the DMO debt
portfolio of N3.714tn is responsible for over 60 per cent of the total
domestic debt, while the CBN’s borrowings with treasury bills and bonds
account for the balance.
While the object of the CBN’s borrowings is targeted
at taming the ever present ‘ghost’ of excess liquidity (excess cash) in
the economy, the DMO’s bond issues were initially targeted at
establishing a benchmark for long-term borrowing and deepening of the
market for government securities. Subsequently, in response to critics
of these expensive and non-impactful debts, the DMO began to include
funding of budget deficits as part of the purposes for its borrowings.
Instructively, however, discerning Nigerians have
doubted the claim of budget deficits in the recent past. Such analysts
argue that crude oil price has never fallen below budget benchmark in
the last seven years! In addition, crude exports have also on average
generally exceeded budget benchmarks. Government’s claims of substantial
deficits, when actual incomes from productive revenue streams exceed
approved expenditure budgets, have become worrisome to analysts; a case
in point is that of revenue expectations in the budget 2012. We recall
that in spite of the budget benchmark of $72 per barrel, and output
benchmark of 2.4mbpd, in reality, crude oil price has hardly fallen
below $90/barrel, while output has not only been stable above the budget
benchmark but has in fact been reported by the Nigerian National
Petroleum Corporation to have exceeded 2.7mbpd for some months.
Fortuitously, also, the Federal Inland Revenue
Service has reported that about N2.5tn has so far been collected as
revenue between January and June 2012. If this excellent performance is
projected for the rest of the year, then, we may expect that internally
generated revenue alone for 2012 may exceed the N4.8tn aggregate
expenditure vote in the 2012 budget! In such an event, the rationale for
the DMO’s borrowing spree becomes questionable, as it is inappropriate
for the agency to borrow money for ‘undisclosed’ expenses, which have
not been captured in the approved budget statement.
Indeed, the DMO’s borrowing binge in spite of
apparently extant surplus funds becomes more bewildering when considered
alongside additional monthly accruals from crude oil exports. If
earlier budgets are anything to go by, export crude revenue (even in
times of unstable crude prices) has traditionally accounted for over 80
per cent of government income. In this event, we may realistically
expect minimal additional inflow of over N4tn (over $24bn) into the
federal treasury this year.
In summary, therefore, total revenue expectations
from the foregoing sources would be a total of N9.5tn, made up of N5tn
internally generated revenue, N4tn from crude export and at least a
minimum of N500bn from customs duties!!
Indeed, the above revenue estimate may still be a
gross understatement, as crude prices and output have remained well
above budget benchmarks this year, and consequently, crude export
revenue could exceed $40bn.
Curiously, however, the DMO (read as Debt Creating
Office) has still succeeded, according to its reports, in adding almost
N500bn to our national debt portfolio so far this year!
In the light of the foregoing, the Finance Minister,
CBN Governor, Lamido Sanusi, and the DMO would need to provide clear
figures not only on government borrowing in the last six years, but also
transparent information on the respective application of such funds.
The economic management team would also need to
justify why government’s appetite for borrowing has increased in spite
of apparent revenue surpluses over the years.
The National Assembly would have failed in its
oversight duties if it does not also demand cogent reasons why Nigerian
government’s borrowings attract outrageous and oppressive interest rates
in excess of 15 per cent, when the risk-free sovereign borrowings in
growing economies generally attract less than five per cent.
Indeed, in spite of the CBN’s admission that the
trillions of excess liquidity mopped up with its bi-weekly sale of
treasury bills are simply kept idle, it is particularly worrisome that
the Nigerian citizenry have acquiesced in the face of the unwillingness
of the federal executive and the legislature to question why the CBN
pays such extravagant interest rates for needless and purposeless
borrowings, while our own reserves of over $35bn earn less than three
per cent.
Incidentally, this process becomes more farcical when
we consider that the scourge of excess cash is self-inflicted, when the
CBN captures monthly distributable dollar revenue and substitutes naira
allocations at its own unilaterally determined rate. Consequently, the
Nigerian economy is besieged by the paradox of ever-increasing burden of
excess liquidity, and its train of adverse economic consequences,
whenever export crude revenue fortuitously increases!
Indeed, it behooves the National Assembly to
immediately halt further borrowing by the CBN and the DMO for any
purpose whatsoever, until they provide convincing explanation of the
need for legislative approval for such borrowings. To do otherwise is to
mortgage our nation’s future to the reckless fiscal and monetary models
of the government.
via Punch
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