MPC members raise concerns over FG, states’ debts

Some members of the Monetary Policy Committee of the Central Bank of Nigeria have expressed concerns over the rising debts owed by the Federal Government and states in the country.

The MPC members voiced their concerns at the last MPC meeting in their personal statements, which were obtained by our correspondent from the CBN.

“The rising public debt levels in Nigeria when added to a variety of other financial sector specific risks seem to dampen the prospects of growth in the near term,” Robert Asogwa said.

While noting that the debt-to-gross domestic product ratio in the country remained arguably sustainable, he, however, said the public debt levels continued to rise and “the current levels appear to be the highest since the HIPC initiative of a debt moratorium by the Paris Club in 2004.”

He stated that the stock of total public debt rose from $79.4bn at end of December 2018 to $81.2bn at end of March 2019, adding that the external debt component had moved from $18.9bn in December 2017 to $25.2bn in December 2018 and further to $25.6bn by March 2019.

Asogwa said, “Even though such countries as Brazil, India and China have higher debt-to-GDP ratios as compared to Nigeria, these economies are also several times larger than Nigeria.

Moreover, the increasing appetite for internationally private-held debt and a persistent hunt for Eurobonds is worrying.

“Besides the associated high cost of borrowing, the huge debt levels crowd out other development spending, given the portions of government revenue allocated annually to service the debt. A coordinated domestic revenue expansion with simultaneous fiscal prudence will be key to addressing the current weak fiscal position of the economy.”

Another member, Mike Obadan, described the accumulated public debt as worrisome, considering the monetary policy implications, among others.

He said, “The federal government debt poses a serious burden with nearly 30 per cent of the budget devoted to debt servicing. Although the debt-GDP ratio is relatively low, the debt – revenue ratio is very high. And it must be stressed that GDP is not used to service debt; rather is revenue in the case of domestic debt or export earnings in the case of external debt.

“Therefore, caution must be exercised on further borrowing while domestic revenue mobilisation efforts are stepped up. The state governments also need to exercise caution in borrowing from commercial banks.”

According to Obadan, available data indicate that state governments are relying too much on bank loans compared to the other tiers, as they account for 74 per cent of bank credit to the governments.

“And apparently short-term credits are being used by the state governments to finance consumption or long-term projects. This compounds their financial woes as deposit money banks obtain direct debits from their Federation Account Allocations. There is need to ascertain the deployment of bank loans by state governments while they should mobilise more Internally Generated Revenue to finance development,” he added.

Okwu Nnanna, the deputy governor, economic policy directorate, CBN, said the fiscal conditions remained disappointing and could further exacerbate the public sector debt and debt service challenges.

He said strengthening the institutional capacity to grow buffers, particularly efficiency in revenue collections, would yield significant economic benefits.