By Isaac Anumihe
Senate yesterday approved the request of the Federal Government to borrow $500 million out of the $1 billion Eurobond from the international capital market to finance the 2016 deficit.
The senate approved the request after putting it to a voice vote at the committee of the whole Wednesday.
Recall that on February 22, the Vice-President, Yemi Osinbajo, then acting President, wrote to the National Assembly requesting the loan to fund the 2016 budget deficit.
In the letter, Osinbajo, said: “The external borrowings incurred to date consist of $600 million from the African Development Bank and $1 billion Eurobond from the International Capital Market (ICM) only.
“Thus, based on the 2016 appropriation and applying the average exchange rate, there is headroom to access further international funds.
“Following the high over subscription of the recent $1 billion Eurobond issuance, we wish to take advantage of favourable market conditions for issuance of Eurobond debt instrument of $500 million to fund the implementation of the 2016 budget, which is still ongoing.”
Osinbajo explained that the $500 million would be used as “funding sources” to finance the deficit, including capital expenditure projects as specified in the 2016 budget.
He added that the Debt Management Office (DMO) and the government’s appointed transaction parties were working to ensure the best terms and conditions for the country as regards the loan.
According to the Director General of DMO, Dr Abraham Nwankwo, as at June 2016, Nigeria’s external debt accounted for only 18.33 per cent of the country’s total debt stock of about N16 trillion.
He disclosed this in his paper, saying that within that very small external debt, concessional debt (with average interest rate of about 1.25 per cent per annum and average tenor of about 40 years), accounted for about 80 per cent of the total.
However, a foremost economist and a development economy expert, Mr Odilim Enwegbara, has said that to grow the economy out of recession Nigeria’s lean budget may not be helpful.
“This is because it is not expansionary, it is not pro-investment, pro-growth, and pro-jobs. As a result, it is not enough to be expected to perform such a magic.
“Let us agree that like most recessions, our present recession is not a product of sudden accident. That is why this conviction of sending the economy to the emergency ward does not arise.
Like every recessionary economy, this economy too urgently needs serious restructuring along with unconventional policies, designed to permanently put it on a healthy and sustainable growth path. This has not yet happened because President Buhari is yet to bring together those gifted pro-expansionary Nigerians to begin performing the inevitable economic diversification surgery.
Why Nigeria’s budget to GDP ratio is very low is because our tax to GDP ratio has remained over the years very low. In fact, ours is lowest among peer economies. South Africa for example, in the 2016/2017 budget has South African Revenue Services (SARS) collected R 1.0699 trillion in taxes, surpassing the R1.0697 trillion targets by R154.07 million.
And with such high tax to GDP ratio of 26.3 per cent, South Africa — unlike Nigeria — has its 2016/2017 tax to GDP very close to what it used to be during the mid-2000s commodity booms. Upon that South Africa’s 2016/2017 fiscal deficit is 3.2 per cent. That explains why the South Africa’s to budget spending in 2016 is $143.966 billion against Nigeria’s $23.928 billion in 2017.
That is why the 2017 with all the good intentions, rather than being an expansionary budget, it is a contractionary budget because it is smaller than the 2016, especially with such low fiscal deficit of 2.18 per cent to GDP against South Africa’s 3.2 per cent” he said