Nigeria’s Rising Debt Profile

Nigeria’s Rising Debt Profile
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When government revenues fall short of its expenditure, governments borrow. Public debt is thus a critical tool for governments to fund public spending, particularly when it is difficult to raise taxes and reduce public expenditure. Over the years, this process has left most governments with massive outstanding debts.

Reasonable borrowings to finance public and infrastructure development are the key to faster economic growth. But excess borrowings without appropriate planning for investment may lead to heavy debt burden and interest payment, which in turn may create several undesirable effects for the economy.

For countries with poor economic structure, high public debt is also a critical issue since it can create uncertainty and low economic growth. High debt-to-GDP ratios are also considered a concern for investors, as they can have a negative effect on the stock market and reduces productive investment and employment in the long-run.

Public debt, therefore, may be an economic stimulant but when its accumulation gets to a very substantial level, a reasonable proportion of government expenditure and foreign exchange earnings will be used to service and repay the debt with a heavy opportunity costs even for future generations.

Moreover, the cost of debt servicing can increase beyond the capacity of the economy to cope, adversely affecting the efforts to address the desired fiscal and monetary policy objectives. In addition, rising debt burdens can restrict the government’s ability to pursue more productive investment programmes in infrastructure, education and public health.

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Public debt can be either domestic or external.

Recently, in a distinguished character, ex-President Olusegun Obasanjo called the shot, urging the current government led by President Muhammadu Buhari not to further engage in financial succour from international borrowings to manage the nation’s mid-term expenditure. He did not mince words on the precarious situation the nation has found itself, calling for caution on further indebtedness which could jeopardise the next generation.

Many prominent Nigerians have been outpouring on the issue even when the government has vowed not to renege on its position to seek foreign credit.

According to Chief Obasanjo, “If we are borrowing for recurrent expenditure, it is the height of folly. If we are borrowing for development that can pay for itself, that is understandable. Then the payment, how long will it take to pay itself?

“But we are borrowing and accumulating debt for the next generation and the next generation after them. It is criminal, to put it mildly. What are we borrowing for?”

Former President Olusegun Obasanjo’s reaction was on the heels of new plans by the Federal Government to borrow funds to pay for what may mostly pass for recurrent expenditure albeit the government’s position that its focus and need for its sustained borrowing is geared towards the provision of the much needed and decayed infrastructure across the country.

Obasanjo has been castigated by many over his position on this voracious intent of the government, however, he appears to be on point on the issue. He is annoyed that we are going a-borrowing just to fund frivolous expenses and to feed our very expensive governance system which President Buhari himself had described as unnecessarily too humongous, and even went on to make a promise during the campaigns for his first outing to cut down as soon as he is elected president. It would be trite to say now is the time when we needed to do so when we have expedient national concerns.

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We have just celebrated 61st independence as a nation, yet still holding on to straws when we actually should be heaving a sigh of relief for the many advantages we can latch on.

President Muhammadu Buhari recently presents the Senate with another request for the consideration and subsequent approval of a fresh external borrowing to the tune of $4.054 billion, Nigeria’s external loan stock is set to reach an all-time high of $45.2 billion.

The proposed addition to the debt stock indicates that external borrowings have sky-rocketed the nation’s foreign debt portfolio by 366 percent since 2015 when the total outstanding foreign debt was $9.7 billion.

This comes against a huge decline in actual revenue over a six-year period with 2020 recording N3.4 trillion, about a 37 per cent decline against N5.43 trillion recorded in 2015.

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Also, the approval of the new request will bring the total approved foreign borrowings in 2021 alone to $12.3 billion.

The new borrowings are tied to funding projects captured in the 2018- 2021 borrowing plan.

Buhari in the letter dated August 24, and read during the plenary by President of the Senate, Senator Ahmad Lawan, is asking for external borrowing of $4.054bn, €710m, $125m in an addendum to the 2018-2020 borrowing plan.

AljazirahNigeria joins the league of concerned stakeholders to ask the question why the leakages in oil revenues has continued unplugged?  Refineries are still not working, yet we are sinking humongous sums to revamp those that are obsolete or at best moribund, which have been technically identified as dysfunctional.

While the government needs to sit up on its responsibilities for the public good, it must be done not to put the future generation in untold hardship.

AljazirahNigeria urges the Federal Government to rethink its debt profile and reconsider dropping its penchant for looking to external sources to feed it rather over bloated spending. The FG could reposition itself for effective home-grown solutions to our problems. What do we do with the numerous potentials that have remained untapped outside oil revenue?


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