DMO latest debt report: Experts seek legislation to cut down on borrowing

By DailyTimesNGR 3 April 2024 134 No comment

.Say data on debt a precarious situation

By Mathew Brangyet

The latest release by the Debt Management Office (DMO) on the debt standing of Federal and state governments has continued to elicit reactions, with many urging the two tiers of government to slow down on borrowing and do more to increase internally generated revenue.

While it is agreed that Governments, including the federal and state, often borrow money to finance infrastructure projects, social programmes, and other public initiatives, some however siphon the funds for their private usage at the expense of the government.

Borrowing allows governments to fund projects that may not be feasible with existing revenue, and it can also help stimulate economic growth.

However, excessive borrowing can lead to high levels of debt and financial instability. It’s important for governments to carefully manage their borrowing and ensure that the borrowed funds are used effectively and efficiently.

An Economic expert, Professor Seth Akutson, in reaction to the latest debt report released by the Debt Management Office (DMO), sought the introduction of a new law by the National Assembly to control the incessant loans taking by both the federal and state governments in the federation.

Speaking with the Business Times on Tuesday, Professor Seth Akutson emphasised on the need for a legislation to control borrowing in the country.

Prof Akutson said: “There is no law that prohibits a Governor from taking loans neither can you stop them.

“But a bill can be sent by the Executive arm of the Federal Government to limit loans to a certain threshold; otherwise, Governors will continue to go for more loans.

“The loans are supposed to be tied to a percentage of a state’s IGR and not Federation accounts, this way the states will sit up to generate more revenue internally rather than going cap in hand to the banks or the Federal Government”.

According to the economic expert, the data on debts released by the DMO puts some states at a precarious situation in terms of the ability to pay principles.

Akutson noted that some states, particularly in the Northern part of the country depend heavily on Federal allocation, some even up to over 90%.

“Some states cannot survive without Federal allocation as it were.

“We cannot rely on Government at any level to enact laws to stop borrowing. What can be done, however, is for Civil Society Organisations [CSO] and the Labour Unions to form a coalition to monitor every loan secured and the purpose to which the loan were utilised and raise the alarm where diversions to unprofitable ventures are noticeably.”

The economist, however, said: “One thing must be made clear, taking loans and incurring debts is not a bad thing in itself, the issue is what is done with loans secured by the concerned 13 Governors.

“If the loan so incurred is for consumption purposes and not for infrastructure development that will complement production in the economy, then we are off the mark.

“But who will bail the cat if the CSO are compromised, then, every man to himself and God for us all,” he added.

Also raising concern on the issue of borrowing by federal and state governments, in a post on his X page on Tuesday, Mr. Peter Obi, the presidential candidate of Labour Party (LP) in the 2023 election, said the country’s borrowings bother him, considering the rapidly increasing rate over the years, and its attendant effects on the economy.

“More worrisome is the fact that there has been no corresponding visible usage or investments as required by the law, to show their impact on the nation’s development,” he said.

“At the end of the second quarter, Q2, of 2023, our debt stood at N87.9 trillion, which was very disturbing to us, because we were at a loss as to what we did with the huge debt, especially the over N23 trillion ways and means borrowed by the last administration, which for me, would have been the end of borrowing without any visible and corresponding investment and benefit to the nation.

“But sadly and more worrisome is the fact that between the end of the third quarter, Q3, and the end of the fourth quarter, Q4, of 2023, about N10 trillion was added to our debt portfolio, which has now taken our debts to N97.3 trillion, again, without any corresponding visible and verifiable utilization.This is the highest ever borrowed in one quarter.”

He asked the federal government to de-accelerate borrowings and re-evaluate what has been achieved with previous funding.

The Business Times recalls that first time governors who assumed office in May 2023, barely six months in power, 13 of them have collectively borrowed N226.8bn from domestic and external financiers.

This is even as findings by this newspaper showed that 16 state governors also increased the debt profile of their states by N509.3bn with domestic and external debt of N243, totalling 95bn and $298.5m (N265.37bn), respectively.

Latest debt reports of the subnational released by the DMO revealed showed that external debt was calculated based on the exchange rate of N889/$.

The sub-national debts are classified into domestic borrowings from local creditors and external borrowings from international creditors like the World Bank and the International Monetary Fund.

The domestic and external debts published on the DMO’s website were as of December 30 and June 30, 2023, respectively.

The states, which include Benue, Cross Rivers, Katsina, Niger, Plateau, Rivers, Zamfara, and the Federal Capital Territory, got N115.57bn from domestic creditors, while governors of Ebonyi, Kaduna, Kano, Niger, Plateau, Sokoto, Taraba and Zamfara states borrowed $125.1m (N111.24bn) from external sources.

For the sub-nationals, a further breakdown of the data showed that Cross Rivers Governor, Bassey Otu, took the highest loan, with N16.2bn from domestic and $57.95m from foreign creditors between June and December 2023.

Katsina State followed with the debt surging by N36.93bn from N62.37bn to N99.3bn by December 2023.

Third on the list is Niger State, with a domestic debt of N17.85bn, surging from N121.95bn in June 2023 to N139.8bn by December of the same year.

Plateau got N16.32bn; Rivers borrowed N7.07bn; Zamfara, N14.26bn; and the FCT under the leadership of Nyesom Wike borrowed N6.75bn from domestic creditors.

For foreign debt, Governor Francis Nwifuru of Ebonyi State accumulated external debt of $37.54m, while Governor Uba Sani of Kaduna State borrowed $17.69m from external financiers.

Similarly, the governors of Kano borrowed $6.6m; Niger, $1.27m; Plateau, $831,008; Sokoto, $499,472; Taraba, $1.51m; and Zamfara, $655,563, from external sources.

Despite declarations by the administration of President Bola Tinubu that it would not continue with the massive borrowings of the previous government to fund its expenditures, the latest developments show that the new government is sticking to the controversial policy amidst increased revenue.

In 2023, state governors got the most Federal Account Allocation Committee allocations in at least seven years. The rise in FAAC allocations to the three tiers of government, especially the states, followed the removal of subsidy on petrol and currency reforms by the Tinubu administration. The reforms have reportedly led to a 40 per cent boost in income.

An analysis of the 2023 FAAC monthly allocations revealed that the sub-national and local government councils got the highest allocation of N627.73bn in September, followed by N610.5bn in December, N555.75bn in August, N533bn in November, N514bn in July and N497.97bn in October.