Key highlights
- Union warns that debt service costs are quite alarming, mostly when compared with the cost of servicing this debt to the revenue generated by the government per annum.
- They called it a calamity of the highest proportion unless we do all we can to increase the revenue base.
- They said that borrowed funds should not be used for consumption, but channelled into productive ventures and infrastructural development.
Petroleum workers in Nigeria have warned about Nigeria’s rising debt profile, which recently hit N77 trillion after lawmakers, approved the securitization of the CBN Ways and Means loans.
They insisted that we insist that borrowed funds should not be used for consumption, but channelled into productive ventures and infrastructural development.
This was disclosed on Thursday by the president Petroleum and Natural Gas Senior Staff Association of Nigeria (PENGASSAN), Mr Festus Osifo, who also warned that for the 2023 budget, FG will be using all the monies generated as a country in servicing debt.
Debt profile
Speaking at the 7th triennial national delegates’ conference of the association, Osifo raised concerns about Nigeria’s N77 trillion public debt, citing that Nigeria’s rising debt profile is a cause for concern.
He also highlighted the FG’s poor implementation of fiscal and monetary policies and policy inconsistencies, which he says works against the economic growth and development of Nigeria, adding:
- “According to the Debt Management Office, Nigeria’s total public debt profile, representing domestic and external debt stocks of the 36 state governments and the FCT, currently stand at N77 trillion.
- “This is quite alarming, mostly when you compare the cost of servicing this debt to the revenue generated by the government per annum.
Debt Service
The Oil Union Chief also warned about Nigeria’s debt service, which he describes as the FG using most of its revenues to service, stating it as a “ calamity of high proportions”, he said:
- “In the 2023 budget, for instance, we will be using virtually all the monies generated as a country in servicing our debt.
- “This is a calamity of the highest proportion unless we do all we can to increase the revenue base.
- “While we do not condemn borrowing, we insist that borrowed funds should not be used for consumption, but channelled into productive ventures and infrastructural development.”
He urged the incoming government to seek other approaches to revenue generation, citing that the current state of the economy needs a steady growth in GDP; and increased access to employment and diversification of the economy.
Challenges
He says Nigeria’s economy faces many challenges including structural imbalance, corruption, weak human capital development, inequality, security challenges and excessive dependence on oil revenue, adding:
- “We have talked a lot about diversification of the economy and this is the time for implementation as a matter of urgency.
- “The truth is that revenue from the oil and gas sector can no longer sustain us as a nation and this is the most auspicious time to walk our talk.
- “We commend the ongoing efforts of government in the agriculture sector and expect the tempo to be sustained in the entire value chain.
- “The efforts should be replicated in areas like solid minerals, tourism, and technology, among others.
- “Efforts must be made by the incoming administration to address the issues of multiple exchange rates as the arbitrage created is negatively affecting the economy.
- “We must put a stop to the use of `Ways and Means’ in enhancing government’s activities as this fuels inflation because it is not backed by value creation.”
What you should know
Nairametrics reported last month that the World Bank said the Nigerian government spent 96.3% of its revenue on debt servicing in 2022 with the constant fiscal deficit worsening the country’s public debt stock, in its Macro Poverty Outlook for Nigeria; April 2023.
- “The fiscal position deteriorated. In 2022, the cost of the petrol subsidy increased from 0.7 percent to 2.3 percent of GDP. Low non-oil revenues and high-interest payments compounded fiscal pressures. The fiscal deficit was estimated at 5.0 percent of GDP in 2022, breaching the stipulated limit for a federal fiscal deficit of 3 percent. This has kept the public debt stock at over 38 percent of GDP and pushed the debt service to revenue ratio from 83.2 percent in 2021 to 96.3 percent in 2022.”
This month, the Senate approved President Buhari’s request to restructure N22.7trn loans taken by the Federal Government from the CBN, under the ‘Ways and Means Provision.’
The securitization will add the Ways and Means advances to the public debt balance, taking Nigeria’s Debt to GDP ratio to 38.4%.
The securitization will reduce the FG’s debt service burden, as the new rate for repayment is now 9% per annum compared to MPR (18%) + 3% previously.
The securitized Ways & Means will be included in public debt statistics, and an amendment to the CBN Act may be necessary to proceed with the securitization.
