Violation of Section 38 of the Central Bank of Nigeria (CBN) Act — a restriction of the amount that can be lent to the federal government by the CBN to five percent cap of former accounting year — can lead to exchange rate-induced inflation. To avoid this situation, the Executive Officer of Dairy Hills Limited, Kelvin Emmanuel, advised the Senate concerning amendment of the CBN Act as a means a securing the advances, eventually requiring a 21 percent interest rate, or the country prepares to get into serious crisis.
Experts have also stressed the need for the next administration to amend the 2023 Appropriation Act to boost the revenue targets of Ministries, Departments and Agencies (MDAs) and ensure reduction of deficit financing. Recently, China EXIM Bank, under the Chinese Government, rejected the Federal Government’s debt request of $22.8 billion. There is also an argument to reduce the debt-to-GDP ratio from 18 to 20 percent band to avert negative effects of expansion of a fractured fiscal position.
Overdependence on oil revenue affect other reliable sectors.
In the next administration’s fiscal strategy, it is advised that there is avoidance of a medium-term expenditure framework that solely depends on debt as a medium of funding budget deficits. According to experts, the major reasons for Nigeria’s increasing public debt is its over-reliance on oil revenue and the federal government’s fiscal irresponsibility. Huge dependence on oil revenue has led to neglect of other reliable sectors like agriculture and manufacturing. However, depleting oil revenue has made the country struggle with budget deficits, leading to massive debts.
Minister of Finance, Budget and National Planning, Zainab Ahmed, during the process of requesting a loan approval from the National Assembly to fund a N4.97 trillion deficit in the 2020 budget, affirmed that Nigeria has a revenue problem. Some experts questioned this statement by the minister, saying it was a denial of the massive debt problem confronting the country; some said it was to detonate the unhealthy loan habits and wasteful spending of the government; while some agreed with the same position as the minister.
Misplaced priorities by the government affects debt increase.
According to Fiscal Policy Partner and Africa Tax Leader at PwC Nigeria, Taiwo Oyedele, the main reason of Nigeria’s increasing debt is the low generation of revenue. Low revenue generation has to do with fragmented tax administration with different agencies, struggling to collect different taxes and levies. The ineffectiveness of this process causes problems for the government and excessive burden on businesses and individuals. To address the issue, government needs to ensure harmonization of taxes and revenue agencies.
Another issue that contributes to increasing debts is inefficient government spending and misplaced priorities. Rather than investing in basic infrastructure and human capital development, funds are diverted on projects with really inflated cost. On most occasions, these projects are unnecessarily delayed, thereby increasing cost and diminishing public value. There is also the issue of poor management of assets and resources, crude oil vandalism, wasteful subsidy regime, and political interference in issues that concern major government business organizations.
FG displays fiscal irresponsibility and mismanagement.
Prof. Oyebanji Oyelaran-Oyeyinka of the African Development Bank, in his comment said that the Excess Crude Account (ECA) which is supposed to serve as a reserve for the country during hard times has suffered depletion. In his words, the government displayed an act of fiscal irresponsibility and mismanagement when it refused to replenish the ECA after depletion, even when the prices of oil were well above the benchmark price. Nigeria began to have it wrong when it started taking funds from the ECA.