With debt service costs now higher than the actual revenue in the first quarter by N310 billion, the Chief Executive Officer of Economic Associates, Dr. Ayo Teriba yesterday noted that tax revenue could no longer resolve the country’s escalating fiscal crisis.
This is as the presidential candidate of the Peoples Democratic Party (PDP) and former Vice President, Atiku Abubakar, challenged the federal government to review the current utilisation of all borrowed funds and ensure that they are deployed more judiciously.
Rather than issuing debts tied to tax revenue, Teriba challenged the government to adopt a more pragmatic approach by leveraging its idle or under-utilised public assets to generate liquidity from would-be investors without the burden of repayment and servicing.
Teriba spoke to THISDAY on the dwindling government revenues and the increasing cost of servicing debt that had in recent times plunged the country into a deepening fiscal crisis.The federal government had since 2019 responded to the fiscal crisis with its Finance Act, which increased Value-Added Tax (VAT); introduced new taxes and sealed more debt contracts that increased its burden to $100.1 billion.
Under the Finance Act, the federal government introduced a telecom tax and carbonated sugar drink tax. It also increased excise duty on alcoholic beverages and tobacco; and levied 0.005 per cent on the net profits of companies to fund the Nigeria Police Trust Fund.Despite imposing more taxes, government revenues at large have been dwindling and the cost of servicing debts rising, a trend that triggered an acute revenue deficit in the last two quarters.
Reacting to the ugly trend, Teriba explained how the Nigerian economy grew exponentially between 2000 and 2014 due to what he attributed to oil windfalls that lifted government revenues and supplied adequate foreign exchange that catalysed economic growth.
He noted that Nigeria enjoyed oil windfalls from 2000 to 2014, before oil prices started weakening in July 2014, saying the windfalls lifted government revenues and supplied adequate foreign exchange to lift the economy and stabilise the exchange rate, consumer prices, and interest rates.He said during this period that both oil and tax revenues grew impressively while a stable Naira then meant that there were no revenue illusions.He added that the federation “has left that era of revenue windfalls for a new era of revenue shortfalls for eight years now. We cannot but take the lessons of those years to heart.”
Despite these ominous signs, Teriba lamented that the government kept managing revenue generation and debt issuance in this era of shortfalls with the same approaches that had worked so well in the era of windfalls.
“That approach is now backfiring as revenue continues to decline and debt costs continue to rise. Debt costs are now higher than revenue. It is not that we should not borrow at all. Every country whose revenue is falling needs to borrow.“But we must replace debt instruments that are ill-suited for a period of shortfalls with debt instruments that are more suited for the era of shortfalls. Writing IOUs or issuing promissory notes against future revenues made sense in a windfall.
“However, it makes no sense in a shortfall. Nigeria’s domestic and foreign debt portfolios are 100 per cent promissory notes against future revenues. We should stop issuing IOUs against revenues that everyone now knows that we no longer have.” Rather than issuing debt against revenue, the economist urged the government “to make two simple fiscal adjustments that are more suited to the era of shortfalls that we have found ourselves in for eight years.
First, he suggested that to regenerate revenue streams, Nigeria should generate non-tax revenues from publicly-owned corporate, real estate, and infrastructure assets rather than trying to increase tax revenue.He also proposed that to cut debt costs, Nigeria must open opportunities for massive investment in the three clusters of publicly-owned assets rather than continuing to borrow to fund them.
Teriba warned that the economy “has twice slid into recessions in 2016 and 2020. An economy that is struggling to get out of recession cannot be a source of rising tax revenues.“Whenever the government says actual non-oil revenue is better than budget, what they do not add is that the exchange rate is now only worth half of the value we budgeted for.
“We should adjust increases in Naira revenue for movements in the exchange rate of the naira before declaring that actual revenues are better than budgeted.“The federal government’s retained revenue increased by 50 per cent from N4 trillion in 2015 to N6 trillion in 2021. However, the exchange rate increased by 275 per cent from N160/$ in 2015 to N600/$ by the end of 2021.”
Atiku Wants Use of Borrowed Funds Reviewed
Meanwhile, the presidential candidate of the PDP, Atiku has challenged the federal government to review the current utilisation of all borrowed funds and ensure that they are deployed more judiciously.
Reacting to revelations that Nigeria’s debt servicing was surpassing the federal government’s retained revenue by N310billion in the first quarter of the year, Atiku also demanded improved spending efficiency and a drastic cut on unnecessary and wasteful expenditures.He said the government must ensure that all borrowed funds are for priority infrastructure projects that would generate income, boost output, and put the economy on the path of sustainable growth.
Atiku, who took to his verified Twitter handle, said the development must be in breach of all known reasonable debt-sustainability thresholds, adding that it puts a big question mark on the capacity of the government to manage its rising debt profile without endangering macroeconomic stability.“Indeed, I am concerned that this action is already exposing Nigeria to financial stability issues as we slip from a medium risk of debt distress to a high risk of debt distress,” he said.
Culled from THISDAY