At the inauguration of Presidential Committee on Fiscal Policy and Tax Reforms, chaired by Mr. Taiwo Oyedele, President Bola Ahmed Tinubu said his administration was committed to breaking the cycle of over reliance on borrowing to fund public expenditure.
The implication of this practice is rising public debt and the burden of debt servicing that it places on the management of Nigeria’s limited government revenues.
Tinubu charged the committee to improve the country’s revenue profile and business environment as the Federal Government moves to increase the country’s tax-to-GDP ratio to 18 percent within three years.
He directed the committee not to fail to achieve its one-year mandate, which is divided into three main areas of fiscal governance, tax reforms, and growth facilitation.
He also directed all government Ministries, Departments and Agencies (MDAs) to cooperate fully with the committee towards achieving their mandate.
“Our aim is to transform the tax system to support sustainable development while achieving a minimum of 18 percent tax-to-GDP ratio within the next three years.
“Without revenue, government cannot provide adequate social services to the people it is entrusted to serve. The committee, in the first instance, is expected to deliver a schedule of quick reforms that can be implemented within 30 days.
“Critical reform measures should be recommended within six months, and full implementation will take place within one calendar year,” the President said.
The Nigeria’s public debt stock as at December 31, 2022 stood at N46.25 trillion equivalent to $103.11 billion.
According to Debt Management Office (DMO) the public debt stock of the country consists of the domestic and external debts of the Federal Government of Nigeria (FGN) and the sub-national governments.
The DMO is the Federal Government agency established to coordinate the management of national debts. It has recognised the dire need for the government to reduce its dependence on borrowing to finance budget deficits by generating more revenues.
Director-General, Patience Oniha, said Nigeria had operated deficit budgets for many decades, which made borrowing from local and external sources imperative.
“The financing of the deficits through borrowing from local and external sources is the principal reason for the growth in debt stock and debt servicing.
“One way to reduce budget deficits is to grow revenues; the other way is to prioritise expenditure and cut waste and leakages.
“How much revenue is Nigeria generating? Statistics show that relative to other countries, Nigeria’s revenue generation is low.
“The World Bank World Economic Outlook for 2020 showed that Nigeria, with a revenue-to-GDP ratio of 6.3 per cent, was ranked 194 out of 196 countries covered,’’ she said.
She said a strong revenue base would reduce the need for relatively large amounts of new borrowing, and will also reduce the debt service to revenue ratio.
“Revenue generation is the way to go and that is how countries develop and use borrowing to augment revenue shortfalls now and again. Nigeria has been running budget deficits for decades; it is about time to shift to balanced budget and even budgets surplus,’’ she said.
Oniha said in terms of composition, total domestic debt stock stood at N27.55 trillion or $61.42 billion, while total external debt stock was N18.70 trillion or $41.69 billion.
“Among the reasons for the increase in total public debt stock is new borrowing by the Federal Government and sub-national governments, primarily to finance budget deficits and execute projects.
“The issuance of promissory notes by the Federal Government to settle some liabilities also contributed to growth in the debt stock,” she said.
She, however, said that on-going efforts by the Federal Government to increase revenue from oil and non-oil receipts through initiatives like the Finance Acts and the Strategic Revenue Mobilisation Initiative were expected to support debt sustainability.
Concerned Nigerians and financial experts have, over the years, advised the Federal Government on the need to improve revenue generation to reduce dependence on borrowing.
An economist, Dr Tope Fasua, suggested that the government would need to optimise revenue generation to cut down on borrowings.
Fasua advised that every state needed to take concrete steps to improve revenue generation for the economy to grow sustainably, and urged the private sector to always cooperate with the government in its revenue drive rather than antagonise such initiatives.
“The private sector kicks anytime government proposes a tax increase, no matter how insignificant. It has turned itself into an enemy of government,” he said an interview with NAN.
According to him, the Nigerian government will also need to get its expenditure priorities right.
“We have a debt problem, we have a revenue problem and we have an expenditure problem. Although debt-to-GDP ratio is not high compared to other countries, Nigeria needs to start spending wisely and generating more revenues,” he said.
The International Monetary Fund (IMF) also has also waded in, urging the Federal Government to take steps to increase the country’s revenue base.
Ari Aisen, Resident Representative, IMF Nigeria Office, during a recent virtual forum on the Nigerian debt situation, advised the government to drastically reduce dependence on borrowing to fund expenditure.
According to Aisen, to resolve the debt issues of Nigeria the country needs to concentrate on its revenue and expenditure.
He said that the debt situation had deteriorated because the Federal Government spent more than it was actually getting in revenues.
“How do you reduce the spending needs of the government? That should be the question. It is really about fiscal discipline. People should not permanently spend beyond what they generate in revenue because it becomes unsustainable,” he said.
Though, stakeholders generally agree that there is nothing bad in borrowing to finance budget deficits and critical infrastructure they however, suggest that for debt to be sustainable, revenue generation should be prioritised.
As the Federal government takes steps to boost the country’s revenue base through tax and other fiscal reforms, Nigerians expect that borrowing will soon cease to be a primary source of funding for the country’s budgets.