.As Budget Office warns debt level becoming unsustainable
Eighteen days to the end of his tenure, President Muhammadu Buhari yesterday, asked the Senate to approve a fresh $800 million loan from the World Bank for the continuation of the National Social Safety Net Programme (NASSP).
This comes just as the Budget Office finally admitted that Nigeria’s debt profile was becoming unsustainable, given its very low debt-to-revenue ratio, and the country is likely to run into murky waters.
Buhari, in the letter, read at plenary by the Senate President, Ahmad Lawan, explained that the loan would specifically be used to continue with the conditional cash transfer programme of N5,000 monthly to 10.2 million poor and low-income households for six months, with a multiplier effect on about 60 million individuals.
The letter reads: “It is with pleasure that I forward the above subject to you. Please note that the Federal Executive Council (FEC) approved an additional loan facility to the tune of $800 million to be secured from the World Bank, for the National Social Safety Net Programme (NASSP).
“There is the need to request for your consideration and approval to ensure early implementation. The Senate, may wish to note that the programme is intended to expand coverage of shock responsive safety net support among the poor and vulnerable Nigerians. This will assist them in coping with the costs of meeting basic needs.
“You may wish to note that the federal government of Nigeria under the conditional cash transfer window of the programme will transfer the sum of N5,000 per month to 10.2 million poor and low-income households for a period of six months with a multiplier effect on about 60 million individuals.
“In order to guarantee the credibility of the process, digital transfers will be made directly to beneficiaries’ accounts and mobile wallets.
“The NASSP being a social intervention programme will stimulate activities in the informal sector, improve nutrition, health, education and human capital development of beneficiary households.
“Given the above, I wish to invite the Senate to kindly approve an additional loan facility to the tune of $800 million to be secured from the World Bank for the National Social Safety Net Programme (NASSP).
“While hoping that these submissions will receive expeditious consideration by the Senate, please accept, Distinguished Senate President, the assurance of my highest regards.”
We now have very limited borrowing space; not because our debt-to-GDP is high, but because our revenue is too small to sustain the size of our debt.
Debt sustainability
Meanwhile, the Director-General, Budget Office of the Federation, Ben Akabueze, has raised alarm that Nigeria’s debt profile is becoming unsustainable.
Akabueze said this while addressing members-elect of the 10th National Assembly at their week-long induction ceremony yesterday, at the International Conference Centre, Abuja.
He noted that due to its poor debt-to-revenue ratio, Nigeria is fast exceeding its limited borrowing space, thereby courting imminent trouble.
According to him, while Nigeria’s debt-to-GDP ratio is within acceptable threshold, its debt-to-revenue is not.
Akabueze said: “You may have heard that we have one of the lowest Gross Domestic Products-to-debt ratios in the world. While the size of the FG budget for 2023 created some excitement, the aggregate budget of all the governments in the country amounts to about N30trillion. That is less than 15% in terms of ratio to GDP.
“Even on the African continent, the ratio of spending is about 20%. South Africa is about 30%; Morocco is about 40%. And at 15%, that is too small for our needs. That is why there is fierce competition for the limited resources.
“That can determine how much we can relatively borrow. We now have very limited borrowing space; not because our debt-to-GDP is high, but because our revenue is too small to sustain the size of our debt. That explains our high debt service ratio.
“Once a country’s debt service ratio exceeds 30%, that country is in trouble and we are pushing towards 100%, and that tells you how much trouble we are in.
“We have limited space to borrow. When you take how much you can generate in terms of revenue and what you can reasonably borrow, that establishes the size of the budget. The next thing would be to pay attention to the government’s priority regarding what project gets what.”
Akabueze also argued that Nigeria does not fit the description of an oil-rich economy when compared to “countries like Saudi Arabia where there are 34 million of them and pump 10 million barrels of crude per day, or Kuwait where there are 3 million of them and pump three million barrels per day.”
He noted that with a population of over 200 million, Nigeria currently pumps about 1.9 million barrels daily. “So, we are not a rich economy and must resist the temptation that we are an oil-rich economy.”
