MEMBERS of the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) have called on the Federal Government to reduce recurrent expenditure in order to curtail the rising trend of the nation’s debt, warning that the N26 trillion debt level poses risks to future economic growth.

Nigeria’s total public debt rose by 17 percent year-on-year to N26.2 trillion on September 30, 2019 from N22.4 trillion on September 30, 2018.

This trend, according to MPC members, is worrisome and poses significant challenge to effective management of the economy. Their views were contained in the personal statements at the last meeting of the committee held last month.
Noting that, “the debt-service-to-revenue ratio is rising precipitously,” Joseph Nnana, CBN Deputy Governor, Economic Policy Directorate, averred that the nation’s debt level is on a trajectory which is not sustainable given the slow pace of revenue generation and output growth.

“Debt service obligations remain precariously high as the 2020 budget reveals. At N2.45 trillion  or 23.2 per cent of the total expenditure, the obligation is 14.5 per cent higher than the previous year and could be exacerbated if fiscal revenues and oil exports decline lower than the benchmarks”, he warned.

On his part, Professor Adeola Adenikinju, noted that, “The fiscal side continues to pose significant challenge in my view. The rising debt level and high fiscal deficit pose significant challenge to effective economic management.”

Warning on the risk posed by the huge debt stock to future economic growth, Asogwa, Robert Chikwendu, stated: “A prime vulnerability remains the high and rising public debt burden and the risks they pose for future growth. The concerns about rising debt accumulation, which are not being matched by rising output growth have been raised at previous MPC meetings and the suggestions for a coherent fiscal coordination strategy that will reduce the levels of fiscal deficit have also been adequately canvassed in the past. With the continued elevation of the proportion of debt denominated in foreign currency, any sharp dollar appreciations will only add to the existing debt sustainability concerns and magnify the negative feedback loop”.
On his part, Professor Mike Obadan averred that the federal government must urgent implement three measures, including reducing cost of governance, to address the rising debt stock, which he described as ‘worrisome’.

According to the Professor of Economics and former Director-General of the Nigerian Centre for Economic Management and Administration, Ibadan, Nigeria, “The Federal Government’s persistent fiscal deficits and the corresponding debt accumulation have continued to be worrisome in view of the implications for monetary policy effectiveness and debt sustainability. The Federal Government fiscal operations from January to September 2019 resulted in a deficit of N3.466 trillion. The Government borrowed from the domestic markets through the issuance of FGN bonds amounting to N670 billion in order to finance the budget deficit. This left a net overall deficit of N2.796 trillion which may have been largely financed from non-budgetary sources in which event it contributes not only to excess liquidity and monetary inflation in the economy, but also to public debt accumulation and crowding out of private investments in the financial markets. To the extent that the widening fiscal deficits have been driven by revenue underperformance and bludgeoning public expenditure whose quality is on the low side, it is crucial for the government to do three things: aggressively pursue domestic revenue mobilisation through tax reforms and enforcement of compliance; progressively build fiscal buffers; and drastically reduce the cost of governance by ensuring expenditure efficiency and effectiveness which is low at present.”

In addition to stressing the need to reduce cost of governance, Mr. Ade Shonubi said the federal government should explore opportunities for financing from the banking sector instead of relying on deficit financing by the CBN.

Shonubi, who is the Deputy Governor, Operations Directorate, CBN, said: “As I have mentioned in my earlier statements, the fiscal authority need to rise up to the occasion and effectively support the effort of monetary policy to promote growth. Persistent shortfall in revenue and increasing recurrent expenditure has made the fiscal space even tighter, while recent trends in the level of deficit and debt accumulation have reached a worrisome state.

“Government must urgently embark on an aggressive expenditure rationalisation to significantly reduce recurrent expenditure, free resources to fund expansion, ramp up fiscal stimulus and enhance fiscal buffers. Deficit financing by the monetary authority must be addressed. The Government must explore opportunities for financing by the banking sector.”