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Misappropriations, economic challenges and $29.6b debt question

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In May 2018, the Office of the Auditor-General for the Federation (OAuGF) released Audit report on the financial statements of the Federal Government, with unaccounted monies running into hundreds of billions. The Auditor-General for the Federation, Anthony Ayine, did not mince words when he called for sanctions against the offenders, lamenting the “extensive violation of statutory financial reporting obligations by government’s agencies as great concern.”
 
But at the bottom of these violations lies Nigeria’s treasury, which is made up of tottering revenue flows, hard-earned foreign exchange from crude oil and importantly, huge borrowed funds that come with trillions of naira as Service bill. Besides, the economy remained difficult for ordinary Nigerians, who battle poverty on daily basis, yet pay their taxes.
 
Last week, the same office, in the discharge of its duties, released the 2017 Audit report on the financial statements of the Federal Government, with unaccounted monies from fiscal violations running into hundreds of billions again. Like in 2016, Ayine, in his personal comment on the report, said most of the government corporations, companies and commissions have not submitted their audited accounts, despite the provision of Financial Regulation 3210(v) which enjoins these bodies to submit both the Audited Accounts and Management Report to him not later than 31st May of the following year of account.

 
The common themes in all of these are misappropriations, lack of development, huge debt burden for the country and impunity that is riding on negligence and collaboration. The nation’s budgetary provisions for debt service would soon be on the upswing, from about N290 billion yearly average to about N870 billion in three years, if the $29.6 billion loan request by President Muhammadu is secured next year.
 
Also, beside raising the country’s total obligations above $113 billion mark (about N34 trillion), the yearly debt service provision in the national budget would be tending towards N3.2 trillion, with worsening budget deficit, unless the revenue base increases significantly.

Currently, the Federal Government estimated a N2.45 trillion debt service in the soon-to-be approved 2020 budget, which would cater to interest payments of the $83.88 billion obligations. The planned loan is equal to 35 per cent of this total. Specifically, 35 per cent ($30 billion) of the country’s total debts, on average, accounts for more than N800 billion of the N2.45 trillion in the 2020 budget. This is an affirmation that the new debt will pressure the weak revenue once it is sealed.

In recent times, the government has used the Eurobond, among others, to raise fund at the international market, which interest rate has moved from below eight per cent in 2016, to about nine per cent as at the last deal. This was sequel to the perceived risky rating of the country, as the debts rise amid deteriorating revenue-to-debt service ratio, which international institutions have repeatedly warned about.

An economist, Ucha Wagbo, said except Nigeria is able to get concessionary loan terms at lower-lower single digit, with interest and principal payments pending till the projects generate revenue, “the government may be plunging the economy into bigger ditch and tougher times”.
 
While debt is not bad in itself, according to analysts and financial experts, governments’ antecedents in the management of borrowed funds have not inspired confidence in the new plan. Currently, the Socio-Economic Rights and Accountability Project (SERAP) filed a lawsuit against Federal Government, represented the Minister of Finance, Budget and National Planning, Mrs. Zainab Ahmed, over failure to disclose information and specific documents on the total amount of money paid to contractors from the $460 million loan obtained in 2010 from China to fund the apparently failed Abuja Closed-Circuit Television (CCTV) project. The suit is also for failure to name the contractors involved and explain why the government has continued to re-pay the loan.

This is one of the antecedents of governments in the management of funds borrowed at huge cost to the taxpayers, with concomitant effects on the growth of the economy. Former Deputy Governor of the Central Bank of Nigeria, Dr. Obadaiah Mailafia, in a monitored programme, said the first loan by this administration in 2015 fronm IDA, at $1.3 billion, for rebuilding the North East, has nothing to show for it till date.

“I have been to the North East states severally. It is the same. So, the request for the humonguous debt is very unsettling, dangerous and unpatriotic,” he said. The Head of Tax and Corporate Advisory Services at PwC Nigeria, Taiwo Oyedele, pointed out that Nigeria’s low revenue base, which is resulting to over 50 per cent of revenue going into debt service, is a clear indication that the current level of debt is not sustainable, unless and until there is a significant improvement in income and expenditure efficiency.

“If government must borrow at all then it has to be for self financing projects, especially in critical infrastructures such as rail, power, ports and major roads. A detailed plan with specific projects should accompany the loan request before approval.“There is need for greater accountability and monitoring of public projects. In addition, there should be public private partnership with competent contractors of repute rather than political jobbers to execute the specified projects.
 
An economist, Ayodele Akinwunmi, said Nigeria May not overcome the infrastructure challenge by borrowing. The Federal Government needs to involve the private sector using different Public Private Financing Models. We can unlock a lot of private capital to finance the infrastructure, while government concentrate on security, setting policies that will improve the economy,” he said.
 
A development consultant and public affairs analyst, Jide Ojo, queried: “Why should we borrow that gargantuan sum of money again despite our current N25.7 trillion debt portfolio as at June 2019? Are there no alternatives to funding those critical, infrastructures for which the President claimed he would use the borrowed fund to fix?  “Given the extant N2.45 trillion debt service allocation in the 2020 budget, which is almost at par with total envelope for capital project, would we have it easy servicing the debt in the nearest future?”.  He warned that the country do not necessarily have to resort to borrowing to fund its critical infrastructure, but to reduce the cost of governance, plug all the revenue leakages, fight the current industrial scale corruption in the system and prudently manage our commonwealth.
 
Meanwhile, a coalition of 42 civil society groups, have described the submission of the loan request by the President to the National Assembly as a cause for worry, even as the Eighth National Assembly earlier turned it down for want of justification. Among the activists are the Centre for Social Justice (CSJ); Civil Society Legislative Advocacy Centre; Centre for Democratic Research and Training; Civil Society Network Against Corruption; Human and Environmental Development Agenda (HEDA) Resource; Citizens Wealth Platform; Women In Nigeria; and African Centre for Leadership, Strategy and Development.
 
Others are SERAP; Centre for Democracy and Development; Partners for West Africa – Nigeria; Centre for Information Technology and Development; International Refugee Rights Initiative; and Zero-Corruption Coalition; Youth Initiative for Advocacy, Growth and Advancement.

For the Lead Director of Centre for Social Justice (CSJ), Eze Onyekpere, the request by the President Muhammadu Buhari for new borrowing in the sum of $29.6billion is step in the wrong direction. According to him, facts show that Nigeria currently uses 54% of its earned revenue to pay back and service existing debts, which is not sustainable and “any further attempt to borrow without considering how the debts will be repaid amounts to fiscal rascality.”

“In the last four years, we have spent more on debt servicing than we have done on capital expenditure due to the plethora of new debts incurred by the administration and there is no evidence to show that previous borrowing has been invested in capital expenditure or human development as stipulated in the FRA.”

“The request to NASS was not accompanied by a cost benefit analysis as required by section 44 of the FRA. This would have shown the likelihood of the investments generating returns to be used for repayment,” he said. He, therefore, called on the lawmakers to turn down the request for borrowing, as it is an obnoxious request and seeks to mortgage the future of generations unborn. But these organisations recognise that Nigeria’s indebtedness at June 30, 2019 in the sum of $83.8 billion (N25.7 trillion), was an increase of 31.35% over $63.8 billion (N12.12 trillion) debt outstanding at June 30, 2015.
 
They also recognise that the external component of current level of indebtedness is $27.1 billion, being an increase of $16.8 billion over the June 30, 2015 external debt component of $10.3 billion. Nigeria deployed 54.3 per cent of her earned revenue to debt service in 2018 and in the first half of 2019, the country deployed 54.2 per cent of all her earned revenue to debt service.
  “
We emphasize that if at a debt level of $83.8billion, Nigeria is deploying over 54% of her revenue to debt service, the country, after taking the new loan of $29.96billion, will need not less than 65% of her revenue to service a new debt level of $113.7billion.
“We also emphasise that foreign currency denominated loans come with exchange rate risks, considering the volatility of the price of crude oil, which is Nigeria’s major foreign exchange earner.
 
“In the circumstances, we further emphasise that the country, after taking the new loan, will be faced with extreme options, a default in its debt repayment obligations or extreme cuts to basic social services, including education and health.  “Whilst we take note of efforts to increase government revenue through the Finance Bill pending in the National Assembly and the recently enacted amendment of the Deep Offshore and Inland Basins Production Sharing Contract Act, it is our position that the steps are tepid and will not in any way dramatically improve government’s revenue,” they noted.

A fact check showed that in 2018, the actual recurrent non-debt expenditure of the Federal Government was N3.1trillion, while debt service was N2.1 trillion, bringing the two to N5.2 trillion. However, the government’s earned revenue was N3.9 trillion, meaning that the Federal Government borrowed or got some unearned money in the sum of N1.3 trillion to settle recurrent expenditure and debt service.
 
Of course, the country borrowed to pay back outstanding debt obligations and there is very little evidence to show, in terms of investments in infrastructure, reflecting $83.8billion of already borrowed money today.  “We affirm that there has been no transparency in the management of Nigeria’s debts as the actual and individual debt agreements, including the tenor, interest rates, terms of repayment, what happens in the event of default are not in the public domain.
 
“We further affirm that the Federal Government has failed to perform its obligations under section 42 of the Fiscal Responsibility Act to set the limits on consolidated debts of the federal, state and local governments.“It must be noted that Nigerians are suffering the huge effect of the high level of borrowing which has necessitated government to churn out month after month of new multiple tax regimes through the banking institutions,” the activists added.


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