Tuesday, November 12, 2019
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Nigerians must tolerate more debt for FG to deliver infrastructure ― Kemi Adeosun

Minister of Finance, Mrs Kemi Adeosun, has said Nigerians must support the Federal Government to borrow more money, if they want it to deliver on power, road and other infrastructure critically needed to grow the economy.

This was just as the Central Bank of Nigeria (CBN) governor, Mr Godwin Emefiele, assured Nigerians that no bank, whether big or small, would fail, as the apex bank was keeping an eagle eye on the banking system to starve off any threat of destabilisation.

 

The Director of African Department (AFR) of the International Monetary Fund (IMF), Mr Abebe Selassie, had raised concerns over growing debt profile in Nigeria and other oil-exporting African countries.

 

The IMF, in its World Economic Outlook report on Tuesday, tasked Nigeria to guard against instability in its banking sector.

 

Adeosun and Emefiele spoke on Sunday during a wrap up press briefing on the annual meetings of the World Bank and the IMF held in Washington DC, United States.

 

Adeosun, who was reacting to questions on the rising public debt of the country, explained that the Federal Government was not engaged in reckless borrowing but took the borrowing option in the best interest of country.

 

She said the alternative to borrowing, particularly in the wake of the plummeting of the country’s revenue by about 85 per cent, would have been massive cut in public services with the attendant loss of hundreds of thousands of jobs.

 

According to her, Nigeria’s debt-to-GDP ratio, which stands at 19 per cent, was lower that the debt exposure of advanced countries which, she said, was as high as 100 per cent in some of those countries.

 

The Minister stressed that the effective antidote to borrowing was for Nigerians, especially the super-rich class of citizens, to pay proportionate taxes to get the economy going strong.

 

Although she described the response to the tax amnesty initiative as positive, she, however, said Nigerians had not embraced the tax culture because there had been no consequence for refusal to comply with tax payment.

 

“The problem in Nigeria at the moment is that most of our taxpayers are at the lower level, which means the burden is being borne by those who can least afford to pay. The man in the hot sun directing traffic has his taxes deducted at source whether he likes it or not. So, why should the billionaire or the trillionaire to proportionately pay out of his income?

 

“We need a mind-set change around the issue of taxes in Nigeria. So far, we are encouraged by the responses of companies and individuals to the tax amnesty. The tax mobilisation effort will work and bring long-term money.

 

“We need to tolerate a little more debt in the short term to deliver the road, the rail, the power. That in itself will generate economic activities and generate jobs which will then generate the revenue which will be used to pay back. It is a strategic decision that as a country we have to make.

 

“What I will assure you is that this govt is very prudent.  We don’t borrow recklessly. We have no intention of bequeathing unserviceable debt to Nigerians. What we are simply trying to do is to ensure that we create enough headroom to invest in the capital projects that the country desperately needs.

 

“I don’t think any Nigerian will argue that we don’t need to invest in power. There is no Nigerian who will argue that we don’t need to do the roads. There is no Nigerian who is honest who will tell us that we don’t have 17 million units housing deficit. So, our vision for Nigeria is not for us to continue hobbling as a core nation.

 

“Why are we having to borrow? Our principal source of revenue plummeted by up to 85 per cent. So, we had two choices: You either cut public services massively, which would have meant massive job losses or you borrow in the short term until you can begin to generate revenue.

 

“As All Progressives Congress (APC), we felt laying off thousands of people was not the way to stimulate the economy. Also, when we came into office, about 27 state governments were not paying salaries. If we had allowed that situation to persist, we would have been in depression now.

 

“So, we took the view that as a government the best for us to do is to stimulate the demand and spend our way out of trouble. Let the state govts pay salaries, make sure the FG can pay salary and invest in capital projects to get people back to work.

 

“Once growth is restored, what was is in my head is that that will automatically reduce dependence on borrowing and improve revenue.

 

“When there is recession it is not the time to talk about tax. Now we are talking about tax so that as the economy grows, people know that as their revenue is growing they should be aware of their tax obligation to the country.

 

“The solution to borrowing in Nigeria is that people must pay taxes. If we pay the taxes properly, there will be no need to borrow.

 

“Of course, I am not suggesting that there is no responsibility on the part of govt to be more responsible and more efficient. We are really focusing on this. We are trying to find ways to cut cost. But fundamentally, we must invest.

 

“We don’t have the power that we need. We don’t have the roads yet. We are a work in progress. There is still a lot of money to be spent to reposition the economy and we need to generate much more by way of tax.

 

“Once we are able to move our tax to GDP ratio from 6 where it is now to 10, this will of course significantly reduce the amount of money that we need to borrow and that will have a wider effect on the economy.

 

“One, it will reduce the demand for short-term borrowing that will help to bring down the interest rate. Two, it will create headroom for the private sector to borrow. They are currently being crowded out. That is the strategy,” she said.

 

On the state governments’ fancy of going borrowing spree without a think for the future and repayment, Adeosun said the many loan requests of state governments had been turned down because the repayment plan was more than 40 per cent of their revenue.

 

The CBN governor, on the health of the banking sector, said the Bank was on the alert to ensure that nothing would threaten its stability and consequently the economy.

 

“What was said was that the Central Banks should focus on their banking system very effectively to ensure that there is no significant destabilisation because anything that destabilises the banking system adversely impacts on the economy.

 

“This we are doing. We are keeping our eye on the banking system to ensure there are no significant threats that will alter the strategic health of the banking industry.

 

“There is a lot of attention on the banking system to the point that we are saying there are certain banks in certain jurisdiction that are too big to fail and indeed in every jurisdiction.

 

“What we are doing is to ensure that no bank will fail in Nigeria whether big or small. What we will continue to do is to see to it that we put in place strong prudential that will continue to guide them. Is it capital, is it liquidity? All these will be put in place to continue to ensure that the banks remain strategically healthy,” he said.

 

He acknowledged the commendation the Bank received for stabilising the foreign exchange and promised a stronger naira as the country’s external reserves continue to grow.

 

“The fundamentals that we see show that there is a lot of stability in the FX market, having come down from the high level to the level that we are now. It is now fluctuating between 359 and 365.

 

“It is a good level compared to where we were coming from. But we think it is important to know that as reserves get stronger and the economic fundamentals get stronger, there is no doubt that the naira will get stronger and we will see more appreciation in the currency,” he said.

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