WITH Nigeria’s debt stock precipitously expanding by N10 trillion in June, President Bola Tinubu needs to confront the debt conundrum he inherited and get the economy back on track. According to the Debt Management Office, the national debt surged to N87.37 trillion in the second quarter after adding the recently securitised ‘Ways & Means’ borrowing of N22.71 trillion, and the depreciation of the naira. With the prevailing low revenue intake, rising inflation and high cost of governance, Tinubu faces very hard choices. While he must abandon the toxic, frenzied borrowing of his predecessor, he also needs to quickly improve revenue to meet current obligations and revive the economy.
Nigeria is back in the debt hole, deeper than the one it escaped from when the Olusegun Obasanjo administration (1999-2007) successfully negotiated a debt relief package in 2005/06. From N27.4 trillion in December 2019, the national debt climbed to N32.2 trillion in December 2020. By Q2 2023, external debt was N33.24 trillion, and domestic debt N54.13 trillion.
In July, the National Assembly approved a new World Bank loan of $800 million for Nigeria. Sadly, the country borrows for consumption; while some loans are taken for a few infrastructure projects, the government borrows for projects that would be better funded and executed by private capital. It borrows to pay salaries, support the excessively large bureaucracy, and the armies of political appointees.
This constrains development in every sector. The President has admitted that the economy cannot sustain current spending 90 per cent of revenue on debt servicing. Capital spending, for long underwhelming, has suffered even more disastrously. Nigeria has a deficit of $2.3 trillion, according to Dataphyte. The Central Bank of Nigeria disclosed that the Federal Government’s expenditure exceeded revenue by N1.43 trillion in Q1 2023. Fiscal deficit reached N3.68 trillion in the first five months of 2023. Recurrent burdens are prohibitive: from the budget of N21.82 trillion, N5.33 trillion was allocated for federal personnel costs in 2023, up from the N4.33 trillion in 2022.
The President has taken notice, saying, “Each time they give me the payroll number, I get so frightened. Where am I going to get the capital to develop the infrastructure we desperately require if the payroll of one per cent to two per cent of the population is consuming all the revenue?”
But curiously, Tinubu is still enamoured of big government and being politically correct. After removing petrol subsidies, the administration is negotiating with labour to increase public wages without a prior drastic pruning of the bureaucracy. Amid low revenue and huge debt, this is self-destructive.
Apart from domestic debt crowding out private sector borrowing, and external debt pressuring the naira, the Manufacturers Association of Nigeria argues rightly, “Contrary to the popular parlance in the government that Nigeria has a revenue problem, the country’s debt crisis is not a result of inadequate revenue, and it is anti-growth to view manufacturing taxes as the last resort for curbing the debt problem.”
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The government should more effectively implement its revenue collection machinery, including the Treasury Single Account, the Voluntary Income Asset Declaration Scheme, and Stamp Duties.
The tax reform panel Tinubu recently set up should quickly produce a strategy to increase Nigeria’s unenviable 6.8 per cent tax-to-GDP ratio to 18 per cent of GDP. Multiple taxes are killing industries and discouraging investment.
Income generation is paramount. The OECD reckons that an economy requires a minimum of 16 per cent tax-to-GDP ratio to sustain itself. Former CBN Governor, Chukwuma Soludo, former Budget Office boss, Bode Augusto, and others estimate that between N14 trillion and N30 trillion extra are realisable annually if the leakages are plugged.
The tax net must be widened, and zero-tolerance adopted for tax defaulters.
Apart from a moratorium on borrowing, Tinubu must privatise the loss-making refineries and other moribund state-owned enterprises like the Ajaokuta Steel Company, and concession the seaports, and airports.
His recent slashing of the contingent to the UN General Assembly is welcome, but cosmetic. Nigeria’s governance costs require much more sweeping cuts. Beginning with his record 45-member cabinet, the Presidential Air Fleet, aides, and vehicle convoys, he should instil prudence and cost-saving in government.
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