FG’s borrowing to fund budget threatens businesses, economists warn

ECONOMISTS have said that the Federal Government’s reliance on borrowing to fund the annual budget is pushing the cost of funds higher for businesses and crowding out the private sector.     

In the proposed N27.5 trillion Federal Government’s 2024 budget, for instance, 45 per cent of the projected revenue of N18.3 trillion would be utilised to service debts.

Analysts said the development had consequences for the rising cost of funds for businesses while also crowding out the private sector.

“The budget would rely heavily on borrowing from domestic and multi-lateral agencies. Foreign borrowings have an exchange rate risks and would keep ballooning the cost of funds for private sector funding and SMEs,” a professor of Macro-Economics at the Pan-Atlantic University in Lagos, Perekunah Eregha, said in response to Nigeria’s 2024 budget proposal.

“The rise in borrowings would put pressure on interest rates and has consequences on rate hikes. When this happens, there would be a decline in investments and a shift of interest by investors,” he added.

More borrowings, he explained further, would also create further problems for Nigeria’s foreign reserve while putting more pressure on the volatile exchange rate.

He suggested that the government have a proper financing strategy and not crowd out the private sector because the nation needed them.

While reacting to the budget, another Professor of Economics at Lagos Business School, Bongo Adi, said more borrowings would expose the private sector and businesses to high risks and compound Nigeria’s currency problems.

    “We need to be concerned about the macroeconomic fundamentals and what we do with borrowed funds. Does it have a direct direct bearing on development or consumption? If we have more borrowings, we have more debts to service, which puts pressure on our currency, “he said.

    Nigeria’s total debts now stand at N87.7 trillion, according to data from the Debt Management Office (DMO), which puts pressure on inflation and worsens Nigeria’s currency problems.

    For the 2024 budget estimates, the deficit is projected at N9.18 trillion or 3.88 per cent of gross domestic product (GDP). This is lower than the N13.78 trillion deficit recorded in 2023, representing 6.11 per cent of GDP.

    President Bola Tinubu, at the budget presentation Wednesday, November 29, in Abuja, said the deficit budget would be financed by new borrowings totalling N7.83 trillion, N298.49 billion naira from privatisation proceeds, and N1.05 trillion drawdown on multilateral and bilateral loans secured for specific development projects.

    Harrison Edeh is a journalist with the International Centre for Investigative Reporting, always determined to drive advocacy for good governance through holding public officials and businesses accountable.

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