Monday, 17 July 2017

Politics: Why Nigeria government cannot do without borrowing money to get out recession

Kemi Adeosun

Analysis of revenue potentials of the country shows that it is near impossible for the government to implement its infrastructural development and economic plans without approaching the debt markets.

In what seems to be a reverse of intention, Nigeria government has said it's going to spend its ways out of the current economic downturn by borrowing massively.

Mrs Kemi Adeosun, Nigeria’s Minister of Finance had hinted earlier that the country needs to curtail some of its borrowings due to huge resources usually set aside for debt servicings on an annual basis. A concern that was also expressed by the World Bank Group while assessing the nation’s economy.

Also Read: Nigeria government can only pay workers' salaries and can't borrow anymore says Adeosun

The government, however, changed its position, it seems the government no longer has any other choice than to borrow to implement its infrastructure program.

More importantly implementing the Federal government’s Economic Recovery and Growth Plan (ERGP).

“Nigeria will continue to borrow, as nothing has changed. The Economic Recovery and Growth Plan provides for an increase in spending over a three-year period, which is reflected in the 2017 budget,” she said.

“We have headroom to borrow and are doing so aggressively in the short to medium term to address our infrastructure deficit and to stimulate growth,” the finance minister stated.

In the real sense, can Nigeria do without approach debt markets considering her vast deposit of oil and gas?

Analysis of revenue potentials of the country shows that it is near impossible for the government to implement its infrastructure development and economic plan without approaching the debt market.

Also Read: Will OPEC oil cut for Nigeria affects its 2017 budget performance?

Fall in global oil price was noted as the major cause of the current abysmal economic condition in the country. Over 75 percent of the government’s revenue and 95 percent of its foreign exchange earnings are derived from oil export.

Though, oil price in recent time has upsurged, the OPEC oil cut and threats posed by Shale Oil are constraints to possible earnings of the government.

Also, the tax revenue of the government is low. It is stated to be 6% of GDP and the lowest in Sub-Saharan Africa (SSA). As a result, not much funding could be achieved with this.

The government has been taken drastic move on increasing tax revenue, but fewer results may be achieved in this revenue diversification drive as the country’s economic situation is poor. And increasing tax during this time would be counter-productive to fiscal expansion policy of the government.

Other areas that could complement the low oil export is the agriculture and manufacturing sectors, but the recent improvement in this sector may not yield enough resources to fill a revenue gap created by the decline in oil prices.

As noted by the finance minister, “for now, however, increased spending, funded by debt, would act as a stimulus for growth.”

This is a confirmation that government may not consider ending its frequent trip to the debt markets to raise needed fund to keep the government running.



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