N31trn Debt: FG May Resort To Fresh Borrowings To Fund Operations, Says CBN

…Rising Debt Profile, Interest Payment Threat To Govt’s Policy

The persistent increase in the nation’s debt profile as well as the huge costs of servicing these debts could limit the economic impact of the fiscal policy objectives of the Federal Government, the Central Bank of Nigeria has said.

The apex bank said if the current Covid-19-induced restrictions persists, and oil
prices remain low, government revenue is likely to further decline.

However, it said recurrent expenditure would continue to rise, considering the counter-cyclical fiscal policy measures needed to sustain the economy.

Following tighter revenue conditions, the fiscal operations of the Federal Government in May this year resulted in an estimated deficit of N561.72bn, compared with the N488.24bn in April 2020.

The larger deficit arose from the combined effect of the 60.5 per cent fall in revenue and rising government expenditure since the beginning of the
Covid-19 pandemic.

Driven by the slump in crude oil prices in March 2020, federally collected revenue in May 2020 declined by 31.6 per cent and 12.0 per cent to N625.91bn, relative to its levels in April 2020 and May 2019, respectively.

The receipt was 52.4 per cent below the monthly benchmark.

While retained revenue of the Federal Government in May was N276.99bn, its total expenditure was N838.71bn, resulting in an estimated deficit of N561.71bn.

Nigeria’s total public debt stock increased from N28.628trn ($79.303bn) as of March 31, 2020 to N31.009trn ($85.897bn) by June 30, 2020, statistics released by the Debt Management has said.

The increase in the debt stock by N2.381trn or $6.593bn was accounted for by the $3.36bn Budget Support Loan from the International Monetary Fund, new domestic borrowing to finance the revised 2020 Appropriation Act including the issuance of the N162.557bn Sukuk, and Promissory Notes issued to settle claims of exporters.

Although a gradual easing of lockdown measures and border restrictions began in May, the Apex bank noted that federally collected gross revenue was impaired by continued slowdown in economic activities.

For instance, the report explained that revenue from oil sources fell below the benchmark and the level in April 2020 because the price of Bonny Light crude dropped sharply from $55.66 in February to $32.01 in March.

The Report stated, “The fiscal position of the FGN deteriorated in May 2020 vis-à-vis April
2020 and May 2019.

“Amidst the ongoing COVID-19 pandemic, the observed rising debt profile as well as the increasing interest payments, raises concern about the medium- to long-term sustainability of fiscal
policy.

“If the current Covid-19-induced restrictions persists, and oil prices remain low, government revenue is likely to further decline.

“However, recurrent expenditure is projected to continue to rise, considering the countercyclical fiscal policy measures needed to sustain the economy.

“Consequently, overall fiscal balance is expected to deteriorate further, while the Federal Government resorts to new
borrowings to finance its increasing obligations.”

It said majority of the state governments generated minimal internal revenue, thus making them susceptible to fluctuations in federally collected revenue.

At the federal and state levels, the CBN said the incipient fiscal crisis may not be steadied anytime soon.

For instance, it said allocations to States and Local governments in May 2020, fell short of their levels in the preceding month and corresponding month in 2019.

The apex bank in the report explained further that allocations also remained significantly below the 2020 benchmarks by 46.6 and 39.8 per cent for States and Local Government Area, respectively.