CBN monetarists decry government increased reliance on debt to finance budget
The Central Bank of Nigeria (CBN) monetarists are unhappy with the government persisted resorting to the accumulation of debt to finance its operations as it will further compound the country’s debt services and debt to revenue ratio.
In their personal notes at the last Monetary Policy Committee (MPC) meeting published by the regulatory bank on Thursday, members said government must cut down on the cost of governance and inefficient spending by government agencies.
“The public debt build-up poses a significant threat to debt sustainability,” Mike Obadan said in his personal note at the MPC meeting in June.
Another member of the committee, Robert Asogwa expressed concern on the increased dependence on borrowing by the government, especially during the period of low revenue from crude oil exports.
“There are however concerns that increased dependence on borrowing with oil prices still at low levels will see the already elevated debt servicing costs soar in the coming years,” Asogwa wrote in his note to the MPC meeting.
Obadiah on his part wants the government to initiate actions to amend the Fiscal Responsibility Act (FRA) 2007 to provide for an effective method of determining remittances by MDAs to the Consolidated Revenue Fund (CRF).
“To this end, one suggestion is to amend Section 22(1) and (2) of the FRA to require Ministries Departments and
Agencies (MDAs) to deposit at least 25 percent of their revenue into the CRF instead of 80 percent of their operating surplus which they arbitrarily determine.
“This will improve availability of funds for financing government activities and reduce fiscal deficits and massive borrowings.
He said the reforms to reduce fiscal deficits must especially be on public expenditure. This is one key driver of the high cost of governance which stakeholders have continued to decry.
“The issue of inefficient spending and high cost of governance needs to be frontally addressed by the government,” he proposed.
On the fiscal deficit, they, however, blamed it on the depressed oil export earnings amid the COVID-19 pandemic has weighed in heavily on the fiscal revenue for 2020.
According to Asogwa, the generation of non-oil revenue is also facing considerable challenges in 2020 because of the low level of domestic economic activities even with the recent increases in the rate of VAT from 5.0 percent to 7.5 percent before the COVID-19 pandemic.
He said government’s recent efforts have been to marginally reduce the expected recurrent expenditures in 2020, whilst increasing borrowing so as to maintain current capital spending.
The Federal Government fiscal operations, as of May 2020, recorded a deficit of N2.4 trillion, while the projected fiscal deficit in the revised Federal Government budget is over N5.0 trillion. Nigeria’s public debt stock as at March 31, 2020, stood at N28.62 trillion with external debt representing 34.89 percent, while the Government projected debt service is about 50 percent of expected revenue.