Debt trap – The Nation

  • It is not matter of revenue but discipline

Nigerians have, not surprisingly been locked in the debate since November 26, 2019,when President Muhammadu Buhari forwarded a letter requesting National Assembly’s authorization for $29.6 billion loan covering the Federal Government’s 2016 – 2018 External Borrowing plan.

Three concerns stem from the size of the loan amount and its sustainability. First, how can the nation manage it in the context of the existing situation in which 50 percent of revenues go into debt service.

Second, the trajectory under an administration that touts frugality as article of faith; and, third, the broad question about whether lessons have been learnt since the nation’s celebrated exit from the debtor cartel of London and Paris Clubs a little less than one and half decades ago.

In all of these, the government has made the all-too-familiar argument that the debt situation is nothing to worry about.

Readily touted in this regard is Nigeria’s 2018 debt to GDP ratio of 27.26 percent which, in the circumstance, suggests that she is currently under-borrowed particularly when compared with her peers like South Africa, Kenya and Mexico whose Debt/GDP ratios are 74%, 53%, 57% and 46% respectively.

The government also insists, not entirely without basis, that the problem is a revenue one rather than debt. It cites the paltry 6 percent tax revenue to GDP ratio – reckoned among the lowest in the world – as proof of how much needs to be covered to bridge revenue shortfalls.

Again, by way of contrasts, the comparative tax to GDP ratios for Kenya is 15.7%, Morocco 21.8%, Cameroon-12.2% and South Africa’s 27.5%.

Both sides of the arguments, to put matters succinctly, are as valid as the conclusions that they derive. Unfortunately, the luxury of such purely academic and open-ended debates is one that the country can ill-afford at this time when the economy not only limps along at an average 2.1 percent growth (compared with population growth rate of 2.5 percent) but at a time the infrastructure gaps are such that would require an estimated annual spend of $30bn(about N9.47tn) over the course of the next 10 years to close.

While it beggars belief that a nation that once celebrated an exit from the clutches of debtors is back on that very tragic path.

This is after a record haul of N70 trillion in oil revenue in a space 13 years.  This is just as tragic is the current mindset in which top officials are known to clutch to meaningless statistics to justify their appetite for free money that flow into our coffers in the guise of foreign loans.

Yet the same officials have done pretty little to either clean up the mess that our public finance has become or devise effective strategies to harness our non-oil revenue sources.

Yes, it is true that the country has revenue problem. Indeed, the current tax to GDP ratio is atrocious.

At VAT collection efficiency of 0.2, the nation’s best efforts come far behind the African regional average of 0.33.Currently, an estimated 19 million Nigerians are said to pay into federal or state tax coffers even as the Federal Inland Revenue Service (FIRS) says it plans to raise this figure to 45 million.

Rather than seek convenience in foreign debts in the vain hope that things will somehow improve, one would have expected the government to move with the same fierce urgency to overhaul the tax infrastructure through automation.

This will ensure all eligible payers are brought into the tax net and to compel compliance with applicable tax regulations by all cadres of players.

A move in the direction asides being a major step towards addressing the debt sustainability question could, in fact, help narrow some of the current financing gaps.

Secondly, as serious as the “revenue problem” appears to be, it is not nearly as insidious as the other pathology best described as “spending problem. “

This refers to the idea that public funds can be spent irresponsibly; that things can be done with little considerations for accountability and to value-for-money as we have seen of successive governments.

Today, Nigerians are living witnesses to the five-year presidency of Goodluck Jonathan under which the nation earned a whopping N51 trillion from oil and yet did little to tackle the infrastructure challenge until things took a dip.

Even now under the Buhari administration, which seeks to take the credit for doing more with less in the area of infrastructural delivery, there are just enough telling evidences of same old vices of corruption, indiscipline,mind-boggling profligacy and poor choice of priorities being a daily order, the most recent being the allocation of N37bn in the 2020 budget for the renovation of the National Assembly complex.

If for nothing other than the current fiscal pass in which the country is locked in, the least expected of the federal government is a relentless onslaught on all manners of fiscal brigandage – including but not limited to the unjustifiably high remuneration being paid to our elected officials across the board – as a demonstration of its good faith and as a sign of its commitment to fiscal rectitude.

Yes, we understand that the country is at a cross roads and hence could do with some levels of development finance to ease up the process of infrastructure delivery.

The truth however is that loans – foreign or local – are actually the easier part.

The bigger is how to ensure fiscal discipline across the board; to emplace mechanisms to ensure that public officers found to be derelict in their fiduciary duties have nowhere to hide.

That way, Nigerians can rest assured that loans taken on their behalf are made to deliver commensurate value.

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