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Business News of Thursday, 14 January 2021


N5.39tn budget deficit borrowing worrying - Expert

Federal Government to borrow N5.39tn to finance funding gap in 2021 budget Federal Government to borrow N5.39tn to finance funding gap in 2021 budget

In a recent announcement, Government has indicated plan to borrow N5.39 trillion to finance the funding gap in the 2021 budget.

Following the decision taken by government, an expert has expressed worry over the plan.

Recently President Buhari signed into law an 'Appropriation Act' which allows the federal government to realise N205.15 billion from privatisation proceeds.

In a publication sighted on, the government is expected to present details of the borrowing plan to the National Assembly soon.

On Monday, Minister of Finance, Budget and National Planning, Mrs Zainab Ahmed, revealed that a sum of N2.34tn would be raised through domestic borrowing and another N2.34tn will be borrowed from foreign sources.

Also, the federal government plans to raise another N706.69 billion from multilateral and bilateral loan drawdown. Meaning a total of N5.39tn will be borrowed from both the foreign and local debt markets. Thus, 39.66 per cent of the N13.59tn will be financed by debt.

The aggregate revenue available to fund the 2021 budget was projected at N7.89tn (35 per cent more than the 2020 revised budget of N5.84tn).

The Director-General, Lagos Chamber of Commerce and Industry, Dr Muda Yusuf, explained that the growing fiscal deficit and the corresponding growth in the debt service commitment raises concerns.

“We are currently dealing with a scenario where the combination of recurrent (non-debt) and debt service budgets are in excess of government revenues.

“This implies that our capital projects will be funded entirely from borrowing.

“Total projected revenue is N7.89tn; recurrent expenditure is N5.93tn; debt service is N3.12tn.

“Therefore, the combination of recurrent expenditure and debt service cannot be covered by revenue. And most often, actual revenues are less than budgeted revenues. And debt service is first-line charge.

“It is thus imperative to begin to examine options for the restructuring of our fiscal operations. It is also necessary to promote reforms that will ease the burden of government expenditure and boost revenue. The oil and gas sector reform is one of such reforms.

“It is noteworthy that the Fiscal Responsibility Act stipulates that government borrowing should only be for funding of capital projects and human development. This once again brings to the fore the issue of cost of governance.

“The Act also prescribes that borrowing should be at concessionary rates and long term amortisation. One could interrogate how well current borrowing plans aligns with the provision of the Act.

“Generally, multilateral and bilateral sources are more concessionary and long term than foreign sources such as the international capital markets like the Eurobond. Multilateral and bilateral loans are often tied to specific projects, which is good,” he said.

He added that “until recently, domestic sources such as treasury bills and Federal Government Bonds were also very costly sources of deficit financing.

“We also need to worry about CBN financing of fiscal deficit, although, and curiously too, the budget is often silent about this.

“Strict compliance with the provisions of the Fiscal Responsibility Act and the streamlining of the cost of governance would facilitate the realisation of the fiscal sustainability objective.”

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