In principle, borrowing is spending tomorrow’s money today, so it must benefit tomorrow to be optimal. This cost of borrowing must be balanced against the benefits that accrue from these financing sources, which involves assessing what the borrowed money is being spent on. It is possible that the net benefit will be positive, but this needs an assessment of the composition and effectiveness of government spending.
“Debt repayments are often made from revenue generation. At less than 5 per cent, Nigeria has one of the lowest revenue-GDP ratios in Africa. The average for sub-Saharan African countries is almost 20, and 30 per cent for oil exporters,” according to Stephen Onyeiwu, a Professor of Economics at Andrew Wells Robertson, Allegheny College.
There is also the issue of recurring deficit and in excess of the 3 per cent rule in section 12 of the Fiscal Responsibility as amended in the Finance Act of 2020, which states that aggregate expenditure can only exceed the ceiling imposed by the FRA when there is a clear and present threat to national security or sovereignty of the Federal Republic of Nigeria.
Nigeria must reduce the high governance cost, rein in corruption and promote faster economic growth by investing in infrastructure. The relatively poor performance of MDAs capital expenditure over the years including the 2021 fiscal year should not be allowed to continue. As at August 2021, the capital budget has underperformed by -34 per cent. However, the aggregate capital expenditure inclusive of government-owned enterprises’ capital expenditure underperformed by -47.1 per cent.
It is imperative to note that budgetary funding alone cannot scratch the surface of Nigeria’s demand for infrastructure. The National Assembly should therefore consider alternative funding sources for key capital projects.
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