Director General of the Debt Management Office (DMO), Ms. Patience Oniha has called on the federal government to reduce its stake in funding Nigeria’s infrastructure deficit stressing that Public Private Partnerships (PPP) be encouraged to reduce Nigeria’s borrowing.
She also noted that the DMO is aware of the country’s high debt servicing, which is why the federal government is striving to increase revenue generation.
She said this in an interview on ‘Arise news night’ a night program on THISDAY’s sister broadcast station, Arise News Channel.
Speaking on Nigeria’s rising debt profile, she said: “Yes we do have debt issues. The DMO advices the government using the tool called the debt sustainability analysis every year, that determines what the maximum space is for the government in terms of what you can borrow, and that is advice to the government.
“So that’s the first level and I think if you’ve listened to some of the presentations or contributions we’ve made at various fora, we’ve always said that while government may need to borrow in the short term, we certainly need an aggressive drive on revenue, as well as encourage Public Private Partnerships (PPP) so as to reduce the level of government borrowing.”
Furthermore, on current debt to income, she added: “Debt serving is high and we have to admit to that but the point we always make is that with growing debt levels, your debt service to revenue will grow If the revenue does not grow at the same magnitude or at a higher level.
“So, your debt has grown but revenues have not grown, you know, to make up for incremental that debt service, and that’s why debt service to revenue has been growing.”
She added: “Reduce the level of unbalance sheet project boring. Meaning government should not keep borrowing to finance all the projects and infrastructure that need to be financed. Of course, we cannot continue to borrow to finance and the requirements for infrastructure, which are high. We should begin to encourage the private sector to finance various projects so that on unbalance sheet borrowing are reduced.
“So essentially reducing the level of government borrowing by encouraging PPP arrangements and those are already going on. We also need to increase revenues so that the need for borrowing would be reduced expectedly and then your debt service to revenue would be lower.”
On his part, the Chief Executive Officer Economic Associates, Mr. Ayo Teriba who was also on the show noted that drive to increase revenue in a fragile economy was not realistic, he however urged revenue generation form FG’s current underutilised assets.
He said: “But nobody is going to disagree that Nigeria needs to raise revenue, but where some of us disagree with the government is that in the current global realities, you can raise more revenue from your assets, from your balance sheet than from taxes. Your economy is in recession and is struggling to escape the impact of the pandemic and it is wrong and misleading to expect more revenue from such an economy. We have a lot of idle assets that can generate revenue and we are not talking about that.
“Secondly, I would also suggest that on balance sheet debt is not the only type of liability that you can have, you can also issue equity. And I don’t know why but if you look at the preference of the Nigerian government, they only have debt in their portfolio. They don’t have any equity issue in the Nigerian Stock Exchange. So, government has almost 100 per cent of the debts in the bond market and has no issue in the equity market.”
He added: “About debt to GDP ratio means nothing. It is a very misleading metric in that debt is stock and GDP is a flow means nothing and some of the best countries with excellent debt management have more than 100 per cent of GDP in debt and it means nothing.
“The global average GDP debt to GDP ratio is more than 300 per cent and it means nothing. What means something is the ratio of your debt to your assets. What it means is that as long as you own more than you owe you are solvent. If your debt is more than your assets, you are insolvent.
“Now the problem the second problem that you raised the debt to revenue ratio. In 2020, Nigeria’s interest payments were in excess of the total revenue of the federal Government. We got N3.9 trillion and we paid N4 trillion. Last year, it was 4.6 trillion out of N6 trillion revenue which was 96 per cent of the revenue for the year and that is alarming.”
He added that the issue with Nigerian debt is the costs, “at which we obtain the debts. We issue at 8 per cent when some parts of the worlds are paying interest rates at zero per cent. So, we need to raise the quality of our debt.
“Our debt portfolios 100 per cent I owe you (IOUs) 100 per cent promissory notes but higher quality debts go beyond IOUs or promissory notes. We should be working hard to raise the component of our debt portfolio that is invest grade.
