The Minister of Finance, Mrs. Kemi Adeosun, has said the thought of saddling future generations with unserviceable debts is not part of the President Muhammadu Buhari-led administration’s agenda.
Adeosun stated this in an article entitled, ‘The debt debate: Deconstructing the debt story’, in which she explained the debt history, the short-term strategy and the medium to long-term outlook for the economy.
She said anyone who thought that the economy the administration inherited in 2015 was in need of minor adjustment was deluded.
The minister stated, “Oil prices had plunged from a height of over $120 to a low of $28 per barrel, yet the country had foreign exchange reserves of $28.34bn (having declined by $16bn in the two years to June 2015 from a high of $44.95bn).
“Despite just 10 per cent of the budget allocated to capital expenditure, debt had (in a period of unprecedented oil earnings), inexplicably risen from N7.9tn in June 2013 to N12.1tn in June 2015. Depending on the candour of the commentator, the outlook was at best challenging, and at worst, bleak.”
She said to deliver a fundamental structural change to the economy that would reduce the country’s exposure to crude oil, an expansionary fiscal policy was adopted with an enlarged budget, which would be funded in the short-term by borrowing.
As the economy recovers and returns to growth, borrowings will be systematically replaced by revenue, according to the minister.
“Through the implementation of the Efficiency Unit and enrolment of Ministries, Departments and Agencies on the Integrated Payroll and Personnel Information System, we have successfully saved N206bn in payroll costs using technology to drive the cleansing process, with the removal of 54,000 fraudulent or erroneous entries. This was attained without the negative social impact of retrenchment.” Adeosun said.
She added that the economic modelling team correctly forecast that in the short-term, there would be acceleration in the accumulation of debt and an increase in debt servicing costs.
The minister, however, said this would be ameliorated by correcting the low tax to Gross Domestic Product ratio through revenue mobilisation, releasing funds to sustain investment in capital and repaying the debt.
She stated, “Mobilising revenue aggressively is not advisable, nor indeed possible, in a recessed economy. But as Nigeria now reverts to growth, our revenue strategy will be accelerated.
“This is being complimented by a medium-term debt strategy that is focusing more on external borrowings to avoid crowding out the private sector. This would also reduce the cost of debt servicing and shift the balance of our debt portfolio from short-term to longer-term instruments.”
Commenting on the inherited debt, Adeosun noted that the Federal Executive Council in July 2017 approved that N2.7tn of hidden liabilities would need to be addressed.
According to her, these obligations include salaries, pensions, oil importation, energy bills and contractor payments, some of which date back to 2006.
She said, “It is instructive to note that the recent Academic Staff Union of Universities’ strike that crippled our tertiary institutions is one of many examples of commitments made by previous administrations that were saddled on this team.
“ASUU’s dispute relates to an agreement reached with the Federal Government in 2013 (when oil prices fluctuated between $102 and $116 per barrel), which was not honoured.”
According to the minister, previously undisclosed obligations are uncovered on a daily basis, with the most recent relating to oil importation in 2014.
She added, “The figures recently released by the Debt Management Office indicate that while total public debt in dollar terms had remained relatively stable since 2015; our debt, when denominated in naira, has increased from N12.1tn to N19.6tn.