The Debt Management Office (DMO) has praised President Bola Ahmed Tinubu for his courage to remove the controversial fuel subsidy and unify the foreign exchange rates.
Director General of DMO, Ms. Patience Oniha who made the commendation while speaking at a one-day Technical Roundtable on Economic Blueprint for President Bola Ahmed Tinubu’s Administration organised by ActionAid Nigeria, said the twin policy of subsidy removal and forex unification have enormous benefits for the economy.
She said though the implementation of these policies has come with some pains, the benefits will have a more lasting effect on the economy.
According to the DMO boss, “It is essential to recognize that the situation of the economy needed critical and urgent attention to avoid a deterioration in major economic and social indices. Thus, some of the measures that have been taken so far were not only needed but essential to propel Nigeria towards sustainable development.”
She said in pursuit of that, leaders must aim for a development model that leads to increased employment opportunities and higher income levels.
She said while the pains from the recent government actions have led to criticism about their necessity and timing, “it is important for us to understand the impact of subsidies and exchange rates on the budget.
“Subsidies are an expenditure item in the budget, thus invariably, they contribute to the budget deficits. On the other hand, the Naira exchange rates used for the budgets are the official rates, which we all know are much lower than the open market rates, the effect of which is lower revenue.
“Overall, these two policy stances that were maintained over many years, contributed to persistent budget deficits which were financed by an average of 90 percent through borrowings.
“For instance, the size of the 2023 Appropriation Act (Budget), is about N21 trillion with a deficit of N11 trillion to be financed by new borrowing of over N9 trillion.”
Oniha said the reversal of these policies has resulted in much higher revenues for all tiers of government.
“As the debt stock continued to grow due primarily to persistent budget deficits, it unavoidably resulted in an increase in debt service obligations,” she said, adding, “Currently, debt service consumes a significant portion of our revenues, not necessarily because debt stock is high but because revenue is low and worse still, underperforms the targets in the budgets.”
She said though Nigeria’s debt stock to GDP ratio at below 25 percent is among the lowest globally, her debt service to revenue ratio, which in 2022 reached 100 percent, is relatively high and reduces the fiscal space available to the government.
“This indicates that the issue lies with our revenue. Unfortunately, the focus on revenue improvement previously did not change the outcomes significantly,” she said.
She noted that the recent quick actions to bring revenue to the fore by the present administration are steps in the right direction. “My main message here is that we cannot discuss growth, development, or debt without giving due consideration to revenue,” she said. “It is now imperative that we confront revenues and take decisive actions to further strengthen our revenue streams from all sources. We expect to see improvements in revenues from the work of the Committee on Revenues set up by the President.”