Loans: FG Increases Borrowing Limit to N61tn

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Loans: FG Increases Borrowing Limit to N61tn
Obiajulu Joel Nwolu

The Federal Government has expanded the country’s borrowing limit to N61tn paving the way for the increment of the current N33.11tn debt portfolio.

The new limit as contained in a document, Medium Term Debt Strategy shows that Nigeria has hiked its borrowing limit from 25 per cent of the Gross Domestic Product to 40 per cent of the GDP.

This development follows on the heels of Senate approval of new $8.33bn and €490m loans from external sources.

As of December 31, 2020, the National Bureau of Statistics put the country’s GDP at N152.32tn. Thus, forty per cent of the current GDP is N60.93tn.

Twenty-five per cent of the current GDP is N38.08tn, an amount which the nation may have surpassed in debt given that there are loans which the nation has already secured but are not included in the debt stock because they have not been drawn down.

This means that Nigeria can borrow as much as N60.93tn. Thus, with Nigeria’s current debt currently at N33.11tn, the new borrowing limit has given the country the leeway to expand its debt portfolio by up to N27.82tn.

Director-General of the Debt Management Office, Patience Oniha, confirmed the new borrowing limit in an interview Punch on Thursday.

Oniha said, “The new debt limit is 40 per cent. It was approved as part of the MTDS 2020 – 2023. The document and highlights are on our website.”

The DMO boss also dismissed insinuations that the new approval given by the Senate may have taken the country beyond the set borrowing limit.

She said, “The latest loan approval is within 40 per cent. Secondly, note that these loans will be disbursed over time and only what is disbursed is included in the debt stock.”

The debt strategy document said, “The debt limit was increased to accommodate new borrowings to fund budget, issuance of more promissory notes and the proposal to transfer some State Owned Enterprises’ debts, including AMCON to the FGN’s Balance Sheet in line with the IMF’s guidelines, and proposed inclusion of ways and means.

“This limit is provided in Section 12(1) of the Fiscal Responsibility Act (FRA), 2007, and efforts are to be made to ensure compliance, except if in the opinion of the President, there is good reason to exceed the threshold, as further provided in Section 12(2) of the Act.”

The primary objective of Nigeria’s MTDS, 2020-2023 is to guide the borrowing activities of the FGN in the medium-term, the document said.

The Head of Economics Department, Pan-Atlantic University Lagos, Dr Olalekan Aworinde, in an interview, said that there were various measures of sustainability.

He said, “There is the solvency ratio; there is also the liquidity ratio. Nigeria might be claiming to be solvent in terms of debt to GDP ratio, but we have to critically look at the debt service to revenue ratio. If it is very high, it is not good for the debt sustainability of Nigeria.

“The debt service to revenue ratio is around 72 per cent, and that shows that 72 per cent of government revenue is used to service debt.

“The truth is that the government will continue to borrow, because the level of their expenditure, the total recurrent and capital expenditure, is always on the increase over the years.

“The government has to finance this expenditure; once they can only spend less than 30 per cent of the revenue they are getting, the fact is that the remaining will have to be financed by some other funds, leading to a budget deficit.

“The end product is that the FG will continue to borrow, and probably sell off some of their properties or print money.

“Earlier this year, we were told that the Federal Executive Council had to rely on printing money to give to the local and state government. This is staring us back in the face: we can see it in the high level of inflation, high level of prices of goods and services in Nigeria over time. The value of the naira keeps depreciating every day. These are some of the likely possibilities in the future.”

This post was written by Obiajulu Joel Nwolu.

The views expressed here belong to the author and do not necessarily reflect our views and opinions.

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