Baba Musa: It’s Unacceptable to Accommodate High Levels of Domestic Interest Payment

•Urges Tinubu to raise revenue-to-GDP ratio to 10% to boost fiscal space

James Emejo in Abuja

The Director General, West African Institute for Financial and Economic Management (WAIFEM), Dr. Baba Musa, has said while Nigeria’s current revenue-to-Gross Domestic Product (GDP) remained low at about 6.5 per cent, it was unacceptable to have a high level of domestic interest payment on debt service.

Speaking during a podcast at the African Development Bank Meetings in Egypt recently, he said the administration of President Bola Tinubu would have to find a way of reducing the country’s domestic debt while also mobilising revenue for infrastructural development.

The WAIFEM DG said the country’s current debt service stood at about N2 trillion of which about $3 billion was used for domestic interest payment alone.

He said, “When you compare it to the external which is just about $300 million, it is so unacceptable to have that high level of domestic interest payment.”

He said fiscal pressures remained one of the biggest challenges confronting West African member countries particularly Nigeria, leading to, “very limited fiscal space” which was compounded by the outbreak of the COVID-19 pandemic.

Baba added that the threat of food security, climate change as well as the crisis in Sudan had further posed risks to the country’s fiscal space.

He said, “The debt situation in almost all the countries was already at high risk of debt distress or moderate risks in some countries.

“All these shocks brought a lot of fiscal issues and necessitated governments to do some interventions that were not foreseen in the budget and also made them borrow more.

“So, it worsened the debt situations in most of the countries, moving the countries in some cases from moderate to high risk and in some cases from high risk to the situation of debt distress.

“The number one thing facing almost all the countries is the lack of fiscal space. Fiscal space for investment and fiscal space to spend more money.”

He said, “Virtually, what we have seen over the last two years if I can be more specific is that the net financing in most of the countries appears to be negative now.

“Which means that countries will have to find a way of mobilising more resources to be able to fund their budgets.”

Noting that Tinubu’s government came at a time of dire fiscal constraints, he said the hope was for the president to appoint technocrats who have the requisite experience to reset the economy into his cabinet.”

He said, “And he (Tinubu) is known as someone who actually focuses on domestic revenue mobilisation and at the same time is keen in building infrastructure.

“Right now, Nigeria’s revenue as a percentage of GDP is about 6.5 per cent compared to an average of about 15 per cent in the region, and maybe 18 per cent to 20 per cent if you consider low to high-income countries.

“For Nigeria, it is an unacceptable situation to have revenue to GDP of 6.5 per cent. If Tinubu can raise it a little above 10 per cent, I think the need to borrow will drastically reduce and he will be able to have enough resources to invest in the country and of course, service the existing debts.”

He said the current government would have to devise a strategy to reduce debt accumulation as this would provide it with some fiscal relief to meet its obligations.

Baba also said that the political economy within the WAIFEM member countries remained a thorny issue to address.

“What I mean by this is that in our member countries, for instance, three to four countries have had elections.

“It gets tricky because as you know, elections come with lots of expenditures that are unforeseen and of course, that tends to throw away government fiscal policy because politicians will like to meet certain expenditures to attract votes.”

He also pointed out that the Russian-Ukraine crisis had brought about lots of food shortages in the region as well as caused increases in prices of food, therefore, worsening the inflationary conditions in almost all the countries including Nigeria.

He added that the uncertainty of food security is currently high.