The Minister of Finance, Budget and National Planning, Zainab Ahmed has said Nigeria can’t stop borrowing because not doing so would stagnate the progress of the economy.
The minister who spoke at the maiden special media briefing by the MDAs organised by the Presidential Communications Team at the presidential villa, Abuja, on Thursday said, even though the country has expanded its borrowing, it is still below 25 per cent debt to GDP ratio and within the borrowing limit.
She said borrowing is necessary to roll out infrastructure now and not later.
Responding to question on excessive Chinese loans taken by the country and consequences on debt servicing, she explained: “On the issue of Chinese loans, if I may be permitted to speak to the question by the business. I think it’s useful to look at the budget for each year; look at the revenues, look at the expenditure, if you take out the new borrowing, really, what will the size of the budget be? How much can the government spend?
“So, there will be a lot of capital projects that are affected. So, we need to look at it that borrowing is, even as you see it in the budget every year, used to support infrastructural development. Otherwise, there will be a challenge.
“Secondly, let me add. I think we’re going through a process where we need to borrow now. Let’s just say in the short to medium term, to get the economy going, while we also expect revenues to improve.
“So, in terms of the pressure of debt service, by the time the revenue comes up, that should be lower, but there are some things you need to do now, to ensure that revenue comes up. So, we need to keep that in mind that if the economy grows and revenues improve, then debt service to revenue, in future, should be lower.”
While acknowledging that the government’s borrowing has become a touchy issue, Ahmed maintained that it is not misplaced.
She further said: “There is a lot of sensitivity in Nigeria about the level of borrowing by the government and it is not misplaced. And I said earlier that the level of borrowing is not unreasonable, it is not high.
“The problem we have is that of revenue. So, what we need to do is to increase revenue to be able to enhance our debt to GDP obligation capacity. If we say we will not borrow and therefore not build rials and major infrastructure until our revenue rises enough, then, we will regress as a country.
“We will be left behind, we won’t be able to improve our business environment and our economy will not grow. So, it is a decision that every government has to take.
“Our assessment is that we need to borrow to build our major infrastructure. We just need to make sure that when we borrow, we are applying the borrowing to specific major infrastructure that will enhance the business environment in this country.
“Again, we all have to work not just the Federal Government but state governments to increase our revenue to enhance our debt service obligations.
“We also have to make sure that when we are choosing the projects, we are choosing carefully the ones that will enhance the business environment so that more revenue yields come into the treasuries of the country.”
Still, on the borrowing threshold, the minister stated: “The total borrowing of the country as of 31 of December is 21.6 per cent of the GDP. So, if we were not looking at adding the other category of loans that I mentioned, we don’t even need to increase that at this time. As of 2019, the debt to GDP ratio was 19.2 per cent. So, only 2 per cent was added.”
She affirmed that all that is needed is for government to increase its local revenue, saying: “The more revenue we realise out of the budget, the less we borrow. As we see the oil price rising and provides us with more revenue, it provides us with some reliefs. We will be able to reduce our borrowing. So, it is a positive thing for us.”
The minister revealed that the Federal Executive Council (FEC) will soon to approve a policy mandating Ministries, Department and Agencies (MDAs) to buy locally manufactured vehicles.
She said as part of measures by the government to control inflation in the country, it has already reduced duties on imported vehicles from 35 to 5 per cent with a view to lessening the high cost of transportation, which in turn, impacts on inflation.
According to her, patronising locally made vehicles will mitigate against dumping due to reduced duties.
The minister maintained that the federal government is committed to purchasing locally made goods and vehicles and would engage with state governments to ensure that they do the same so as to encourage local production.
On the new import duty policy, she said that the Nigeria Customs Service has already directed all its outposts to commence its implementation.
She added: “Nigerian Customs has reviewed these guidelines and has notified all its operational posts to start implementing the new rates. So, it has taken effect.
“The Federal Government is committed to buying made in Nigeria products and buying made in Nigeria vehicles in particular. So, we will be hoping to have a Federal Executive Council approval to compel federal government agencies to buy made in Nigeria vehicles as much as is practicable.
“So, when the security agencies need a security vehicle that is a special design, and you don’t have it in Nigeria, we will still need to buy the ones that are outside.
“We’re hoping to also engage the states and encourage the states to take similar measures. It is important for us because we want to make sure the automotive industry survives and grows.
“The Federal Ministry of Industry, Trade and Investment has just finished a review of automated policy, which has been running now for seven years. I must say that the policy has not been reviewed before.
So, this is the first review that is being done and the essence of the review is to see whether it has achieved the designed targets.
“Once the ministry gets its approvals, then the review will be announced and perhaps there will be a refreshing of the measures that are contained in that policy.”