Obinna Chima
The federal government has been advised to adopt fiscal prudence to avoid a debt trap in the country, especially as global interest rates start to rise.
The CGF Advisory, stated this in its latest report on Nigeria’s economic outlook.
Debt trap is a situation in which a debt is difficult or impossible to repay, typically because high interest payments prevent repayment of the principal.
Therefore, the research and investment firm stressed the need for the federal government to determine its financing needs, set its borrowing limit and then comply with Fiscal Responsibility Act
As part of its recommendations to reset the Nigerian economy, the firm stated that a major policy overhaul to reduce revenue vulnerabilities and budget deficits that jeopardise the economy, was needed.
It pointed out that key policy reforms would be imperative to support and sustain macroeconomic stability. These, it listed to include, among others, a foreign exchange management framework that reflects the market fundamentals, the acceleration of the country’s economic diversification agenda, and the oil and gas sector reform, among others.
In addition, it advised the federal government to cut overhead and recurrent expenditure, while increasing capital expenditure to total budget ratio.
“There is an urgent need to reduce debt service to revenue ratio and also urgently raise non-oil revenue through programs such as initiatives to drive more people into the tax net and increase tax to Gross Domestic Product (GDP) ratio.
“Lending policy needs be revisited given concerns about deteriorating asset quality, tightening monetary policy to counter the rising inflation, each state government must pass a Fiscal Responsibility Act, and the Ministry of Finance, Budget and National Planning and other relevant bodies need to draft a successor medium-term development plan to succeed the Economic Recovery and Growth Plan (ERGP),” it stated.
The ERGP which was launched in April 2017, focuses on strengthening the public-private sector partnership and promoting inclusive, diversified and sustainable growth. Its timeline is about to elapse and the federal government is yet to achieve its set targets.
Commenting on the 2020 approved national budget, the report stated that 71 per cent of debt service was to service domestic debt which accounts for about 68 per cent of the total debt. The overall 2020 budget deficit is N2.175 trillion. This represents a decrease of 12.1 per cent from the 2019 budget, a 1.52 per cent of estimated GDP (which is below the 3% threshold set by the Fiscal Responsibility Act of 2007), and is in line with the ERGP target of 1.96 per cent.
The aggregate expenditure project in the 2020 approved budget is NGN10.59 trillion. This is 5.2 per cent more than the 2019 approved expenditure.
