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Why we discourage states from borrowing – FG

By on March 12, 2015

The Federal Government on Tuesday explained that it was discouraging state governments from borrowing because most of them were experiencing difficulties in servicing their existing debts.

The Federal Government had last year directed that Deposit Money Banks must always get approval from the Ministry of Finance before granting loans to any state government.

The directive had made it difficult for states to get loans from the banks for developmental purposes.

The issue was tabled before the Federation Account Allocation Committee’s plenary session at its meeting in October last year by the Lagos State Government.

The committee had condemned the directive arguing that it was meant to starve the states of resources to finance long-term capital projects.

Figures released by the Debt Management Office put Nigeria’s debt profile as of December 31, 2014 at $67.72bn (N11.24tn), which was about N1.2trn higher than the 2013 debt stock of N10.04tn

A breakdown of the country’s indebtedness showed that the external debt stock of both the federal and state governments was $9.71bn (N1.63tn), while the domestic debt stock for only the Federal Government was $47.04bn (N7.9tn).

The balance of $10.96bn (N1.7tn) was for the domestic debts of the states during the period under review.

But the Minister of State for Finance, Bashir Yuguda, while delivering a lecture titled: ‘Nigeria’s Economic Policies and Reforms’ at the National Defence College, Abuja on Tuesday, described the country’s debt profile, particularly that of the states, as scary.

He said a lot of states had become heavily indebted that they did not have enough revenue to service the loans they took and carry out other government activities.

Yuguda said, “The domestic debt profile of some states is scary. They are so much in debt that only a small amount of their allocations get to them at the end of the day. This is because most times, money for debt servicing is removed from source.

“This is the reason why we discourage them from borrowing. Even if they will, it has to be on prioritised projects with high returns. Prioritisation is key in this difficult time.”

The minister said that the Federal Government was currently focusing on certain sectors that had the potential of improving the nation’s growth, while simultaneously creating jobs.

For example, he said the government was seeking to reposition the agricultural sector through the Growth Enhancement Support and the agricultural lending scheme, among other programmes.

Yuguda said that in the manufacturing sector, the government was putting in place policies that would drive investors to make meaningful investments.

He said that the Nigerian Industrial Revolution Plan, which was launched in 2014, would accelerate the growth of the automotive sector, noting that currently, three auto manufacturers had set up plants in Nigeria.

The minister expressed confidence that Nigeria had what it takes to be economically independent, adding that research had shown that most businesses in the country were self-funded.

“Nigeria is not a donor-dependent country. Most businesses do not receive support from international agencies. Nigeria is one of the few developing countries that do not rely on donor agencies to fund its budget; we are self-sufficient,” he said.

Yuguda added that the Federal Government was working on tightening the means through which public funds were being mismanaged in the country.

“Through the Integrated Payroll and Personnel Information System, we have saved N161.9bn as of March 2014 and eliminated 56,000 ghost workers,” he added.