Budget 2013: FG to set up sinking fund on domestic debt - Okonjo-Iweala
Category: Nigerian Economy
July 10, 2012 by Babajide Komolafe & Lazarus Ibeabuchi / Vanguard
The Federal Government will set up a sinking fund to retire some of the nation’s N5.3 trillion domestic debt stock from 2013 fiscal year, with the aim of gradually reducing the huge domestic debt burden.
Meanwhile, the total wage bill of the Federal Government has risen to N1.6 trillion due to the implementation of the new minimum wage, while 39 per cent of capital expenditure for fiscal 2012 has so far been implemented.
Minister for Finance and Coordinating Minister for the Economy, Dr. Ngozi Okonjo-Iweala, disclosed this in Lagos, yesterday, at a consultative forum on Budget 2013 for private sector operators and civil society organisations.
Responding to concerns about the nation’s rising debt profile, she said: “It is indeed true that our debt ratio is alright and sustainable at this moment. That is why the rating agencies upgraded Nigeria when they were downgrading everyone else. Our debt-GDP ratio, if you just take federal debt, it is about 17 per cent—both domestic and foreign. If you add what we have from the states, we could get up to 21 per cent as opposed to a standard of 25 to 30 per cent which we have set for the country.
Slow down on borrowing
“Now, we have to worry about the debt service to revenue. But even if we are okay internationally, we have to look at the composition. It is true that domestic debt is worrying. Our problem is not external debt. Our external debt is very low, two per cent of GDP. But we really need to slowdown the rate of borrowing domestically.
“The interest rate at which the Federal Government and states are raising debt at the moment is too high. We are raising debt at 15 per cent because we need the money to finance our expenditure and finance capital. But if you can raise debt at zero or one per cent somewhere else, which one will you go for?
“So, we need some expertise to manage and balance these. Now, what are we doing? Since I came on board, we have been trying to decelerate the rate of accumulation of domestic debt because since you rammed up expenditure in the past three or four years, you cannot just bring it down overnight, otherwise the country will shut down.
“What we can do is to bring down the trajectory. And we have done that sharply. For 2011 budget, we borrowed N852 billion, we brought this down to N744 billion in 2012 budget and we are going to take it down in 2013 budget. What we are aiming at is to bring it down to a level of about N500 billion in the medium term.
“At the same time we already have about N5.9 trillion of domestic debt. The issue is let us deal with the flow, because debt is two things—stock and flow. For the stock, we also begin to retire some so that we don’t continue to keep the debt and making it accumulate. We are proposing in this budget, opening a sinking fund, where we are going to take a chunk of our money and put it there in the fund and we are going to take money and retire one or two of the bonds. So we begin to be responsible. We are not going to just keep on refinancing our debt. This budget is going to be tight. We are going to use money upfront, with Mr. President’s permission to pay our debt.”
FG’s wage bill hit N1.6trn
Director-General Budget Office, Dr. B. Okogu, said increased wage bill was one of the factors for the huge domestic debt profile. He said: “In terms of expenditure, personnel cost accounted for a chunk of the recurrent budget. This includes the 53 per cent increase to civil servant, increase in minimum wage, etc. These contributed to the current wage bill of N1.6 trillion. For the first time, it ran to N1 trillion in 2004, but today, that budget cannot pay salary.
“The external debt has gone down but the local debt has been rising due to the deficit budget over the years and the wage bill contributed to this. We have to manage the debt particularly now that the oil market is slumping.
“Another challenge on the implementation of the budget is that we also have too many ongoing projects which are more than 6,000. For instance, education had 1,374 on-going projects or 22 per cent, health has 968 or 15 per cent, works has 400 or 6 per cent and power has 532 projects, among others. We need about N7 trillion to finish all these.
There is not enough money to implement the budget. But so far we have released about N404 billion for capital expenditure this year of which N304 billion was for first quarter and N100 billion for second quarter. So far, implementation level is about 39 per cent.”