New Loans: Nigeria may hit insolvency - Experts

Economic and private sector operators have said that the decision of the federal government to borrow N5.6 trillion to fund the proposed N13.98 trillion budget 2022, will further worsen the nation’s debt problem and push the country closer to insolvency.

They also faulted the exchange rate assumption of the proposed budget 2022, describing it as unrealistic given current realities in the foreign exchange market.

Key assumptions of the proposed Budget 2022 approved by the Federal Executive Council (FEC) on Wednesday include Crude Oil price benchmark of $57 per barrel, Crude oil production of 1.88m barrels per day, Exchange Rate of N410 per dollar, Inflation Rate of 10% and nominal Gross Domestic Product of N149.4 trillion.

The proposed budget includes a total expenditure of N13.98 trillion, projected revenue of N9.16 trillion, deficit spending of N5.62 trillion and new borrowings of N4.89 trillion.

Commenting on the highlights of the budget, experts expressed concern over the N5.6 trillion deficit which they described as worrying given that the previous deficit has been used to finance consumption instead of infrastructure which will help boost the productive capacity of the economy.

‘It’s ironic to borrow money to pay debt’

Prof. Omowumi Iledare, the Ghana National Petroleum Corporation (GNPC) Professorial Chair, Oil and Gas Economics and Management, Institute for Oil and Gas Studies, University of Cape Coast, Ghana, said: “The deficit is more than 40 per cent of the budget. It is ironic to borrow money to pay a debt if the bulk of the deficits are to service debt.”

“Government has been borrowing funds both locally and internationally to fund previous budgets and this has not yielded the desired benefits,” said Mr Ambrose Omordion, Chief Operating Officer, InvestData Limited.

Continuing, he said: “Borrowing itself is not a bad idea but the purpose for which it is being put to use is very germane. The previous borrowing by this government had shown that money borrowed was used more to meet recurrent expenditure than capital expenditure and this is not good for our economy.”

‘Nigeria heading towards insolvency’

Noting that the borrowing activities of the Federal Government is pushing the country towards insolvency, Mr Sola Oni, a chartered stockbroker and CEO, Sofunix Investment, said: “It can be argued that Nigeria is still under the global threshold in the area of borrowing. The World Bank’s threshold is 25 per cent of GDP and Nigeria is still at 21.8 per cent. But this is not heart-warming as the country is moving close to the level of insolvency. It is true that there is nothing really wrong with borrowing provided it is channelled for productive use.

“Nigeria is not borrowing to finance infrastructure that can have multiplier effects such as boosting economic activities, creating employment opportunities and enhancing the GDP. But the country borrows to finance consumption and mounting expenditure. This is putting severe stress on our external reserve and the value of our currency.

“The option for survival is to invest in infrastructure, create market-friendly policies that will enhance investment in the upstream, encourage export to earn forex and address insecurity with a negative impact on the country’s risk.”

On his part, Lead Promoter, EnergyHub Nigeria, Dr Felix Amieyeofori, noted that the deficit spending will likely be bigger than proposed given that 2022 is an electioneering year.

He said: “I am worried about the deficit budget and the continuous borrowing to make up the numbers.

“The government must actively structure the economy to other viable revenue-generating sectors in order to stay liquid.

“Regardless of the projection of the Minister of Finance, Budget and National Planning, Zainab Shamsuna Ahmed, our Debt/Revenue ratio may hit the ceiling in 2022, especially if one considers that it will be an electioneering season for this government.”