The harsh economic condition in the country forced the Federal Government to borrow the sum of N2.89trn from the banking sector in the fourth quarter of 2015, figures obtained from the Central Bank of Nigeria have revealed. The figures are contained in the fourth quarter economic report of the apex bank, a copy of which was obtained in Abuja on Monday.
The bank stated in the report that the total credit of N2.89trn from the banking sector to the Federal Government was an increase of 3.8 per cent over the amount borrowed in the third quarter of 2015.
The CBN said the increase in lending by banks to the Federal Government was attributed to an 18.7 per cent rise in Deposit Money Banks’ holding of government securities within the period.
The report stated, “Banking system’s credit (net) to the Federal Government, quarter-on-quarter, rose by 3.8 per cent to N2.89trn, compared with the growth of 11.0 per cent at the end of the preceding quarter.
“The development reflected the 18.7 per cent rise in the DMBs’ holding of government securities. Over the level at end-December 2014, the banking system credit (net) to the Federal Government grew by 151.6 per cent, compared with the growth of 142.4 per cent at the end of the preceding quarter.”
Government’s borrowing from the banks may be part of measures to meet up with its operational expenses due to the persistent drop in the price of crude oil in the international market.
The drop has led to a serious shortfall in the amount accruing to the Federation Account, which has in turn reduced the funds available for distribution among the three tiers of government.
For instance, as a result of the economic challenges, the CBN stated in the report that the Federal Government recorded a fiscal deficit of N289.1bn in its operations in the fourth quarter of 2015.
The apex bank explained that the fiscal deficit for the fourth quarter was N158.4bn higher than the N130.7bn recorded in the third quarter of last year.
The report stated that the Federal Government could not generate enough revenue to finance its expenditure as a result of some economic challenges.
According to the report, while a total sum of N818.4bn was generated as revenue by the Federal Government in the fourth quarter of 2015, about N1.1trn was spent to finance various programmes.
A breakdown of the total expenditure showed that the recurrent component accounted for 59.6 per cent or N655bn, while capital and statutory transfer components accounted for 31.8 or N349.8bn and 8.6 per cent or N94.6bn, respectively.
A further breakdown of the recurrent expenditure showed that the non-debt expenditure component accounted for 65.7 per cent or N430.3bn, while debt service payments accounted for the balance of N224.6bn or 34.3 per cent.
The report read in part, “At N1.10trn, provisional data showed that the Federal Government’s expenditure for the fourth quarter of 2015 was lower than both the provisional quarterly budget estimate and the level in the preceding quarter by 6.9 and 5.8 per cent, respectively.”
“The development, relative to the quarterly budget estimate, was attributed mainly to the rise in capital expenditure.
Reacting to the development, some financial analysts said the borrowing might be a last resort by the government to survive its revenue challenges.
They said there was a need for the government to urgently begin a readjustment of its fiscal position in a way that would enable it to generate more revenue from taxes.
The Head, Department of Banking and Finance, Nasarawa State University, Uche Uwaleke, said the supplementary budget, which was approved by the National Assembly during the fourth quarter of 2015 to pay for fuel subsidy, might have led to the borrowing.
He said while borrowing in itself was not a bad economic strategy, the way in which the borrowed funds was being used was important.
Uwaleke said, “I am not worried about borrowing because debt is a leverage, but it depends on what the loan is used for. Recall that we had a supplementary budget of about N500bn and this must be financed by the government, but because of the drop in revenue, the government needed to borrow to pay subsidies to oil marketers.
“Oil prices had been on a steady decline during the fourth quarter and this affected revenue. So, I see the borrowing as a last resort to prevent the total collapse of the economy since we had a serious revenue shortfall.”
The Director-General, Institute of Fiscal Studies of Nigeria, Mr. Godwin Ighedosa, said the expenditure of the government needed to be reduced in a manner that would reflect the rate of revenue decline.
He said, “We have so much relied on oil revenue within the last 45 years and with the decline in oil revenue, the time has come for us to review our fiscal position.