Economists Fault 2022-2024 MTEF, Say N14.6tn Debt Service Plan Unsustainable

*Propose securitisation of assets as an alternative strategy

Gboyega Akinsanmi

Nigeria’s leading economists have faulted the 2022-2024 Medium-Term Expenditure Framework (MTEF) and Fiscal Strategy Paper (FSP), warning that projecting N14.6 trillion within the timeframe is unsustainable.

The economists, however, tasked the apex government to consider securitisation of its idle assets as an alternative funding strategy rather than pushing the country into a debt trap that might eclipse its future economically.

Chief Executive, Economic Associates (EA), Dr. Ayo Teriba; Founder, Centre for Value in Leadership, Prof. Pat Utomi, and a former Deputy Governor, Dr. Obadiah Mailafia canvassed these views in separate interviews with THISDAY yesterday.

Under the 2022-2024 MTEF and FSP, the federal government had projected to spend an aggregate of N14.6 trillion on debt servicing while it planned a budget of N13.95 trillion in 2022; N15.54 trillion in 2023, and N16.8 trillion in 2024 within the timeframe.

As shown in the MTEF, the federal government projected to spend N3.6 trillion on debt servicing in 2022, N4.9 trillion in 2023, and N6.1 trillion in 2024, bringing debt service cost to a cumulative of N14.6 trillion.

Concerned about the budget-debt service percentage under the 2022-2024 MTEF and FSP, Teriba lamented that the debt service cost, as projected in the three years, “is higher than both capital expenditure and recurrent spending.”

EA’s chief executive argued that the sustainability of the country’s debt or the burden that the debt would impose on its finances largely depended on how it borrowed.
He, therefore, said the size of the debt “matters very little. But the type of debt that we contract matters more. Some types of debt are not sustainable on the one hand. Some types of debt are sustainable on the other hand.

“There are some types of debts that are not worth contracting and that can make the borrowers worse off. Some types of debt are worth contracting and that can make the borrowers better off. The major weakness in the MTEF that we have identified is that the bulk of Nigeria’s debt is not linked to assets.”

He blamed governments’ failure to link debt to assets as the reason the country’s debts “is not sustainable. We borrowed, but the borrowing backfired by restricting our ability to spend even the low revenue that compelled us to borrow in the first place.”

Teriba suggested that a better way of borrowing “is to seek to raise debt that does not impose debt service cost on us. That is the significant difference between asset-linked debt and debt that is not linked to assets.”

He, therefore, called for the securitisation of assets, which according to him, centred on an arrangement that allowed the lender to use the assets of the borrowers to generate revenue within an agreed timeframe without debt service cost attached.

The economist said: “This is what we call securitisation of assets. It is sustainable because it is of great benefit to the borrower even beyond the cash that you raised. First, I get additional cash to supplement my low revenue.

“Second, I have put an idle asset into use by authorising the financiers to manage that asset to recover their money and make a profit over the agreed threshold of profit you will be renting it to me. I am not going to repay the principal and you cannot come to me for any interest payment.

“The governments can come up; line up an idle fund for securitisation and use it to replace our existing unsecuritised debt. We do not have to pay N14.6 trillion we have projected for debt servicing in three years. Nigeria is very rich in assets. But most of these assets are idle. That makes the case for asset securitisation very urgent.”

In his comprehensive analysis of Nigeria’s debt profile, Utomi described the 2022-2024 MTEF and FSP as unwelcome, noting that it was unexplainable “to be where we are right now in terms of debt profile and the future of the economy.”

He, also, lamented that the country “has got to a situation of not creating an option for how we can sustain the economy. Rather, we are just waiting for oil proceeds and paying up whatever we have borrowed in the meantime.”

According to him, that is a very poor vision of how to grow an economy. What is now evidently happening is that the debt has become unsustainable. Many state and federal governments are spending a substantial share of their revenues on debt servicing. This is not sustainable.

Utomi, however, recommended the strategy of focusing on the supply side, which he said, entailed the production of goods and services and generating a balance of trade from exports that favour Nigeria to bail the country from the debt trap.

He, rhetorically, asked: “What do you produce? How do you produce? We need a strategy for that. In my opinion, the strategy must seriously focus on production and foreign exchange generation that deal with our debt problems. We need to look at something I talk about all the time – our factor endowment and going into perspective planning.

“We need a desperate strategy to push us in the direction of producing for exports where we have a comparative advantage or where the economy enjoys a latent comparative advantage,” the professor recommended.

He, also, challenged the federal government’s strategies “to expand the economy or the economic activities by leveraging our assets to create capitals. Peruvian economist, Hernando de Soto made a strong point about poor countries like Nigeria. We have a lot of assets. But those assets are not tangible.

“It cannot transform so quickly to collateral for example that somebody can use it to get funding for ventures that will expand economic activities. We do not have that representational system in the land registry.

“In Europe, every piece of land is documented in the land registry and the value is established through the land registry. Every point in time you borrow from a retirement plan, for example, use the money to invest and create new value or wealth. That is how we can grow our economy.”

Mailafia, in specific terms, urged the government “to cut back drastically on certain worthless expenditures while keeping a leash on the cost of governance.
“Government should also engage with our creditors to restructure our loans to ensure the fiscal space that will enable us to continue to grow while expanding the possibilities of collective welfare.

“There should be a more rigorous system of accountability for the continuing revenue-generating agencies of government – Customs, FIRS, NNPC, and others. We hear many gory tales of trillions being lodged in private accounts.”

CBN’s former deputy governor, also, observed that boosting revenue in the present situation would require also ensuring a sound macroeconomic environment and an attractive business eco-system that enables businesses to flourish.

According to him, it is only when this happens that the government will be in a position to tax them. Finally, we must learn to live within our means. The current operating cost of the government is way too high. Some many lacunas and gaps facilitate financial leakages and hemorrhages. All these must be rigorously plugged.

In 2022, under the framework, the federal government put projected expenditure at N13.95 trillion, comprising N3.4 trillion for non-debt expenditure, N3.6 trillion for debt servicing, and N3.61 trillion for the implementation of capital projects.

By 2023, it increased its total projected spending to N15.54 trillion, with N6.49 trillion allocated for non-debt expenditure, and N3.61 trillion for capital expenditure.
In the 2024 fiscal year, is projected to spend N16.8 trillion to finance its budget, with debt servicing gulping N6.1 trillion; recurrent expenditure N6.4 trillion, and capital expenditure standing at N3.61 trillion.