But that was where the good news stopped because shortly afterward, the country began a new journey into the shackles of foreign and domestic indebtedness in which by 2011, statistics indicated its total foreign debt soared to the tune of US$47.9 billion while the domestic debt platform rose to about US$42.3 billion, much higher even before the debt relief.
Concerned over the rise of the debt profile of the country, Finance Minister and Coordinating Minister for the Economy, Dr. Ngozi Okonjo-Iweala, said last month during the opening ceremony of national conference of the National Council on Finance and Economic Development (NACOFED) with theme, “Restructuring Nigeria’s Public Finances” in Minna, Niger State, that the Federal Government must introduce some measures to manage the country’s debt, particularly the domestics ones.
She said: “Clearly, we had to do something about the rising level of domestic debt. With the support of Mr. President, we introduced a number of measures to manage our debt, particularly the domestic debts.” The minister added that some of these measures adopted included that which translated into the gradual reduction of domestic borrowing from N852 billion in 2011 to N744 billion in 2012 and N577 billion in the 2013 budget, saying the goal of the Federal Government in that regard is to further reduce the debt in the budget of 2014.
She maintained that government paid down part of the domestic debt rather than rolling it over, saying that in February 2013, government retired N75 billion worth of maturing domestic bonds and that it is going to be a calculated plan by government to continue to retire maturing bonds rather than rolling such debts over.
Another measure earlier adopted by the government in managing domestic debt was the establishment of sinking fund with an initial capitalization of N25 billion. The minister said the sinking fund would be used in retiring maturing bond obligations in the future.
On records of the various state governments’ outstanding contracted domestic debts, Okonjo-Iweala stated that her ministry is working closely with all the states concerned to compile an authentic statistics of their various debts profile with a view to providing a comprehensive data base.
She said: “Let me commend the Debt Management Office (DMO) for recently completing this exercise. We now have a comprehensive data on sub-national debts which would enable us to effectively monitor debts across all tiers of government. I will also urge you in the state governments to keep an eagle’s eye on your domestic borrowings.”
Okonjo-Iweala who spoke intensively on the economy of the country at the conference, also highlighted some of the challenges associated with the running of public finances of the country, among of which she said is over dependence on oil revenue, which she described it as one plague that became cog in the wheel of running the finances of all tiers of government in the country.
She said: “At both the federal and sub-national governments, we have become very reliant on FAAC allocations, and as a result we face a lot of challenges whenever there is some price or quantity shock to our oil production. Over time, our dependence on petroleum revenue has resulted in the deterioration of our non-oil tax base. In 1970, non-oil taxes accounted for about 74 percent of Nigeria’s government revenue, but by 2012, it had declined to only 30 percent of Federal Government revenues.”
She noted that Mexico, another major oil producing country that has a population of 115 million people and produces about 2.5 million barrels of oil per day, obtains nearly 54 percent of its national revenue from the non-oil sector said, but that in Nigeria the reverse is the case, where states and local government councils depend largely on monthly revenue allocations from the central government and that on the average it indicated that only 11 percent of sub-national level revenue was obtained from the internally generated revenue.
The second challenge, according to her, is that the structure of public expenditure is lopsided, stating that at federal level, and in most states, budgets consist mostly of recurrent expenditures and despite that governments continue to get demands for more recurrent spending.
She said: “At present, Academic Staff Union of Universities (ASUU) wants government to pay N92 billion in extra allowances when the resource are not there and when we are working to integrate past increases in pensions. We need to make choices in this country as we are getting to a stage where recurrent expenditures take the bulk of our resources and people get paid but cannot do the work.
“When I resumed as Minister of Finance, I realized that the share of recurrent expenditures in our total budget had increased astronomically. In fact, recurrent expenditure accounted for about 77.2 percent of the federal budget and we are now working to re-balance this ratio. I am sure we have a similar picture in many states across the country,” the minister added.
Improving on the budget formulation process that has to be adopted in the management of public finances of the country, the minister said, is a challenge at federal and sub-national levels and that there is also the need to have a strong social compact from all stockholders on how budgeting should be prepared, particularly between the executive and legislature.
Dr. Okonjo-Iweala said in recent years, her ministry has made a lot of progress in introducing new reforms in the economic sector such as the Fiscal Responsibility Act and oil price base fiscal rule, adding however that the implementation of these rules require greater consultation from all stockholders in the budget process.
“Look at the benchmark oil price which was introduced in the budget starting in 2004. This rule has now enabled us to reduce the microeconomic volatility which previously plagued the Nigerian economy while also increasing public servings in the excess crude account.
The last among the four challenges the minister enumerated was the need to improve the actual public financial management system in which she faulted the present system of management which she said is manual and paper based with same instrumentality used in implementation of budget at both federal and sub-national levels, despite the advancement in technology.
After having reeled out the problems associated with the management of public finances of the country, the coordinating minister enumerated measures adopted as solutions and progress made in addressing the problems.
She said the Federal Government is committed toward diversifying the economy by reducing over-dependence on oil and that as the non-oil sector is growing so it will increase the non-oil revenue earnings for the country.
“We are pushing for growth in many areas of the economy such as in agriculture, manufacturing, in the housing and real estate sector as well as in the service sector such as creative industries, ICT, sports, health and so on,” she said.
She further remarked that in 2012, the Federal Government hired international consultants to conduct a diagnostic exercise on the bottlenecks in tax collection process. The consultants found many areas where the country could improve enforcement and compliance in the tax system.
On oil benchmark prices, many resource-rich countries have found a transparent and objective way of setting the reference prices which they use in their budgets. Nigeria can borrow a leaf from them.
Another progress made was the introduction of electronic systems to support budget implementation. At present, three electronic payment and oversight platforms are in use. Dr. Iweala stated that new Integrated Personnel Payroll Information System (IPPIS) which allows direct payment of government workers based on biometric data is in place.
Government Integrated Financial Management Information System (GIFMIS) electronically links the Treasury to other government departments and that enables transparent movement of funds as well as Treasury Single Account (TSA) which permits the Finance Ministry to have better oversight of all government account balances and enables better fiscal control have also been introduced.
Declaring the conference open, the Vice President Mohammed Namadi Sambo said since the restructuring of the Nigerian public finance is one key element of transformation agenda of the present administration, “this administration has introduced various forms of reforms aimed at restructuring public finance management and diversifying the economy in the face of dwindling oil revenue occasioned by global recession.”
Sambo who was represented by the Minister of National Planning, Usman Shamsudeen, added that the reform in public finance management had started yielding results, adding that the Federal Government is making good progress in reducing current and recurrent expenditure to a sustainable level while increasing the fiscal space for supporting capital projects.
