High debt hurts infrastructure investment – ​​DMO

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The Director General of the Debt Management Office, Patience Oniha, said high debt levels lead to high debt servicing and affect infrastructure investment.

This is according to a paper she presented during a workshop for civil society organizations organized by the SFTAS Program Coordination Unit which was held in Abuja on July 15, 2022.

It was titled “Why Debt Sustainability Matters at the Subnational Level in Nigeria: Challenges and Prospects” and a copy was obtained by our correspondent.

According to the DG DMO, “high debt levels lead to heavy debt servicing which reduces the resources available to invest in infrastructure and key sectors of the economy”.

In the document, she stressed the need for debt sustainability, which she defined as the ability to meet all current and future obligations, while maintaining the ability to fund policy objectives without resorting to undue adjustments. significant or exceptional financing such as accumulation of arrears, debt restructuring, which could otherwise jeopardize its stability.

She added that “a country’s public debt is considered sustainable if the government is able to meet all of its current and future payment obligations without resorting to exceptional financial assistance or defaulting.”

However, despite the high debt service, the DMO has consistently insisted on the sustainability of Nigeria’s growing debt, using the debt-to-gross domestic product ratio as justification.

The International Monetary Fund previously warned that debt servicing could eat up 100% of federal government revenue by 2026 if the government fails to implement adequate measures to improve revenue generation.

According to the IMF Resident Representative for Nigeria, Ari Aisen, based on a macro-fiscal stress test conducted on Nigeria, interest payments on debts could wipe out the country’s entire revenue in the coming years. next four years.

Aisen said, “The most critical aspect for Nigeria is that we have done a macro fiscal stress test, and what you are seeing are interest payments as a share of revenue and as you see in terms of the federal government’s benchmark in Nigeria, nearly 100% revenue is expected to be covered by debt service by 2026.

“So the fiscal space or the amount of revenue that will be needed and that without taking into account any shocks is that most federal government revenue is now, in fact, 89% and it will continue if nothing is meant to be taken up by debt service.

However, the Minister of Finance, Budget and National Planning, Dr. Zainab Ahmed, recently revealed that Nigeria’s debt service cost exceeded its income in the first four months of this year.

Debt service engulfed N1.94tn between January and April 2022, against retained income of N1.63tn.

According to a recent PUNCH report, the Federal Government exceeded its debt servicing allowance by N1.15 billion for the period between January and November 2021.

A copy of the public presentation of the approved budget for 2022 by the finance minister showed that the federal government allocated N3.32 billion to debt service in 2021.

However, the Minister’s presentation document showed that a total of N4.2tn was spent on debt servicing in 11 months, indicating a difference of N1.15tn or 37.9% of the money allocated to servicing debt for the period.

The punch also reported that Nigeria’s debt service bill increased by 109% from N429 billion in December 2021 to N896 billion in March 2022.

In October last year, the Minister of Finance, in an interview with Bloomberg TV, said: “Our debt service relative to overall revenue is high because we have a very large expenditure base. We have a large part of our budget devoted to the payroll, and Mr. President had decided from the start of his administration that we were not going to disengage staff.

“So you have to pay salaries, you have to pay pensions. And also, we have to fund the other branches of government, which are the judiciary and the legislature.

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