Why Government Will Continue To Borrow To Fund Budget – DMO

Why Government Will Continue To Borrow To Fund Budget – DMO

The Debt Management Office (DMO) informed the House of Representatives Committee on Appropriation that unless revenue-generating agencies in the country enhance their revenue generation and contributions to the government treasury, the government will continue to resort to borrowing for funding the annual budget.

In response, the Appropriation Committee rejected revenue projections for Government Owned Enterprises (GOEs) and other revenue-generating agencies as contributions to fund the 2024 budget.

Furthermore, Minister of Budget and Economic Planning, Senator Atiku Bagudu, informed the committee that President Bola Ahmed Tinubu has directed all ministers to think innovatively about increasing government revenue.

Director General of the DMO, Patience Oniha, stated during her appearance before the committee that while borrowing for critical projects is not inherently negative, an increase in revenue generation would mitigate the need for government borrowing.

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As of June 2023, the total government debt stood at N87.37 trillion, with the Federal Government accounting for 90 percent of the debt.

Oniha explained that the debt increased due to the addition of Ways and Means advances to the existing debt. She emphasized that as borrowing increases, debt servicing will also rise. The DMO is expected to raise about N8.8 trillion from local and foreign sources to fund the 2023 budget, with N7 trillion already raised from local sources. The country has been running a deficit budget for several years, requiring the DMO to raise funds both domestically and internationally to support the budget.

“We run budget deficits because we have projects and programmes in the budget that the government wants to run.

“We usually publish the debt data every quarter. So the most recent data we have in terms of debt stock is as of June 30th of 2023. The figure for public debt is N87.37 trillion. That is made up of external and domestic debt and it is for the federal government and the 36 states and FCT.

“Out of the 87 trillion, about 90 percent belongs to the federal government, I believe, because of the role the federal government plays. We account for the largest share. But we report everything because that is best practice.

“If you compare that figure to last December it was 46 trillion naira. So it has grown sharply because we have borrowed and but also because we added the ways and means advances to that number. It is public. It was approved.

“Debt has been growing largely from new borrowings. You see the MTEF for instance that you have approved, it has borrowings in each of the year of 8.7, 10.2 and 11.58 trillion naira just to buttress the point that as you increase the funds the debt stock grows.

“So it is also growing because we have issued promissory notes and again like I said, ways and means advances. We usually like to say that debt stock relative to our GDP is not the issue. That has grown from 23 percent in March to about 40 percent in June. The same way the debt stock grew.But what we need to do, to focus on, is debt service revenue which is very high.

“So apart from trying to generate as much revenue as we should, what else should we be doing? We are advocates for a number of initiatives being taken. Agencies should be privatized if those projects can be better managed. You can attract capital. Do the private public partnership so that not everything is on the budget.

“We should strongly support the Fiscal Reform and Tax Policy Committee, we really need to get that working to change the story of us.

“For this year 2023 the DMO was to provide about 8.8 trillion naira. 7 trillion of that is domestic meaning we borrow it here in naira. And then there is 1.7 trillion that ordinarily in normal times we would have issued eurobonds or from other sources”.

“We have been extremely supportive of funding the budget and the operations of government. The other way we try to support Infrastructure is directly with the sukuk. So this year some of that 7 trillion we issued it by way of sukuk and you will soon begin to see the roads across the FCT. ”