ECONOMICS have warned the Federal government that rising budget deficit and debt servicing will starve the private sector of funds needed to drive the real sector of the economy.
President Muhammadu Buhari had on January 3 signed the 2023 budget into law. The N21.83 trillion budget has a recurrent expenditure of approximately N8.27 trillion and a capital expenditure of N5.9 trillion, with debt servicing increasing from N6.31 trillion to N6.6 trillion.
Economists say rise in debt servicing and massive borrowings to fund fuel subsidy have negative effects on the economy, especially the real sector.
The Chief Executive Officer of Cowry Assets Management Limited, Johnson Chukwu, told The ICIR that if the government did not caution its funding of the budget deficit, the private sector would be weakened in its capacity to drive the economy.
Chukwu said, “When we talk of the budget deficit of N12 trillion today, we are also talking of a national debt of more than N22 trillion. If the Federal government continues to borrow, the implication is that you are going to crowd out private sector funding for the real sector.
“The increase in projected revenue only gives incentives to spend more even when we haven’t met up with it in the last five years. Now, this has made us to increase the budget deficit, which is putting lots of pressure on our funding the private sector.”
The economist also warned that Nigeria may head the way of Ghana if it failed to address its appetite on “unregulated borrowing.”
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Another economist and financial analyst, Gbolahon Olojede, said the government must address concerns of borrowing by widening its tax net beyond the formal sector.
“It is largely because of poor revenue that we are resorting to borrowing. The incoming government has lots of work to do on this, otherwise we will run into more trouble.
“The tax net is weak. The formal sector is carrying the burden of taxation. How far can you stretch the budget in formal sector? What is the government doing to expand the revenue net?” Olojede said.
He suggested to the government to deal with matters of wastages and costs of bureaucracy, adding, “We must industrialise and drive manufacturing, and stop the huge export of raw materials, which leaves us in economic losses.”
The ICIR reports that President Buhari had told the National Assembly at the signing of the budget on January 3 that to enable the budget work, the Federal Ministry of Finance must find a solution to the burdening impact of Ways and Means (loan from the central bank to the Federal government as lender of last resort), which is currently at N22 trillion.
He stressed the importance of economic managers addressing negative impacts of Nigeria’s rising debts through effective cooperation.