• Canvas debt issuance linked to assets, not revenues
• Warn against using taxation to raise funds
Fiscal policy and public finance experts, including Economic Associates chief executive Dr. Ayo Teriba, have criticized the federal government’s decision to borrow to fund recurrent spending, pointing out that such a move flagrantly violates Article 41 of the Tax Code. Accountability Act, 2007.
Rather than violate the tax system, experts have urged the federal government to take a cost-effective approach to revenue generation by issuing asset-backed debt, not revenue-based debt. They argued that the country’s revenue base could not service its total outstanding debt.
Economic Associates CEO Teriba; PwC Nigeria’s tax policy partner, Mr. Taiwo Oyedele, and the Managing Director of the Center for the Promotion of Private Enterprise, Dr. Muda Yusuf, said so in separate interviews with THISDAY.
The Acting Accountant General of the Federation (AGF), Chukwuyere Anamekwe, said during the fourth retreat of members of the Technical Sub-Committee on Cash Management held in Abuja that Nigeria was borrowing money to pay salaries .
The AGF had said: ‘Due to falling revenues, the Treasury has had to resort to other sources to increase the payment of federal government employees. It’s absurd. Normally, one should not borrow to pay salaries.
In their reactions, fiscal policy experts spoke out against the federal government’s willingness to borrow to meet its basic recurring obligations.
Speaking on the legality of the federal government’s decision, Oyedele argued that not only “borrowing to pay salaries or generally for recurrent expenses is against the law, but it is also unsustainable because it can lead to a debt trap that could quickly get out of control.”
He based his position on Section 41 of the Fiscal Responsibility Act of 2007, which he said clearly defines what the federal, state and local government could borrow internally or externally.
Section 41 (1) (a) of the Act stipulates that the debt management framework during the financial year must be based on certain rules.
According to this section, “Government at all levels shall borrow only for capital expenditure, human development and to undertake critical reforms of significant national impact, provided that such borrowing is on concessional terms or at of relatively low interest and with a reasonably long amortization period subject to the approval of the appropriate legislative body if necessary.
As required by law, Oyedele explained that the country’s fiscal responsibility regime only allows governments at all levels to borrow to finance capital expenditure, human development and critical reforms with significant national impact.
He insisted that federal government borrowing “will negatively affect Nigeria’s sovereign credit rating and increase the rate of borrowing for the government as well as the private sector, and in turn could affect economic growth and push more people in poverty with the resulting implications for social insecurity”. .”
Oyedele challenged the federal government “to urgently review the efficiency and priorities of its spending. Only recurring expenses that are timely should be incurred with the utmost caution.
“It is important to reduce waste, corruption and all forms of inefficiency. Implementing the Oronsanye report and limiting gasoline subsidies to only the deserving poor are essential steps in this regard, just as the government needs to reform the tax system to fight tax evasion, widen the tax net and broaden the tax base to generate sustainable income.
While also pointing out the illegality of the federal government’s reliance on borrowing to fund recurrent spending, Teriba specifically advocated a more pragmatic approach to increasing the tax burden on citizens.
Teriba criticized the federal government’s approach to borrowing, which he said was fiscally reckless, regressive and unsustainable in light of global development.
He also pointed out that linking debt to tax revenue was no longer tenable due to what he attributed to the impact of recession, COVID-19 and devaluation which had ruined the people’s income base.
The economist advised the federal government to issue asset-based debt, which he said did not obligate the debtor country to repay and service its debt.
Teriba further urged the federal government “to adopt what Brazil, India, Saudi Arabia and now Egypt have done. But Brazil and Saudi Arabia started doing it in 2015 or 2016.
“Nigeria should issue asset-based debt. Taxation is not a viable path in an economy where recession, COVID-19 and devaluation have ruined people’s income base.
“Other countries are giving tax exemptions right now. Many other countries are even borrowing to pay subsidies. When other countries are subsidizing their people, we can’t tax our people. We have no income at all “, explained Teriba.
He instructed the federal government “to securitize its assets. Nigeria is rich in assets. Nigeria should only issue asset-based or asset-backed debt securities. Saudi Arabia will borrow all of Nigeria’s public debt within two years. But they mainly issue Sukuk.
“The advantage of Sukuk is that it is linked to assets. They do not promise to pay interest. They simply invite people to invest in their assets for profit or dividends. Nigeria does not issue any asset-based debt. Its assets are all idle,” he added.
The economist explained how Saudi Arabia recently listed its 1.99% stake in Aramco after establishing the market value of the state oil company.
While Saudi Arabia still owns 98.01% of its state-owned company, Teriba revealed that the Middle Eastern country made more than $29 billion from the deal.
Similarly, the economist suggested that the federal government establish the market value of the Nigerian National Petroleum Corporation (NNPC), its subsidiaries, railway lines and power transmission lines, among others.
“We should list all businesses not to sell them, but simply to establish their market value. With this, we will know the value of the assets. The advantage of knowing the value of our assets is that we do not sell them. But we use them to raise funds.
“We should start issuing Sukuk on income-generating assets. We will derive billions of dollars from these assets today. We will never have to pay it back. We will never have to nurture it as investors will scrutinize the assets for profit and principal recovery.
Corroborating Teriba’s position, Yusuf said the way out of this fiscal conundrum “is to find more creative ways to reduce and rationalize government spending and increase revenue.”
“The government must find the courage to act on the audit reports to correct these shortcomings. The economy is bleeding heavily from petrol subsidies, which could reach around 5 trillion naira by the end of the year.
“Although this is a politically difficult issue to manage, especially at a time like this, it is an issue that needs to be addressed urgently. The subsidy scheme is not sustainable. It is therefore imperative to reduce the cost of governance,” Yusuf added.