Saving Nigeria from another debt trap

 

Buhari

President Muhammadu Buhari. PHOTO CREDIT: Vanguard

Director-General of the Debt Management Office (DMO), Ms. Patience Oniha, last week reported that Nigeria’s debt profile as of December 31, 2018 stood at N24.387 trillion. The debt grew by 12.25 per cent from N21.725 trillion in 2017, which is about N2.66 trillion in just one year. According to her, Nigeria’s domestic debt accounted for 68.18 percent of the figure, which consisted of debts owed by both the Federal and State governments.

Going by the figure presented by the DMO, the huge addition was recorded in the fourth quarter of 2018, which came with N1.96 trillion or 8.03 per cent increase against the N22.428 trillion recorded at end of September 2018.

The rising national debt became noticeable when the current administration came into power. The new borrowings made by the regime so far include N1.457 trillion in 2015; N2.321 trillion in 2017; N1.643 trillion in 2018 and N1.649 trillion in 2019.

States’ debt analysis according to the DMO indicated that the Federal Government’s debt stock was N17.117 trillion as of December 2017 but increased to N19.234 trillion at the end of last year, representing an increase of 543.65 or 11.80 percent.

The Federal Executive Council (FEC) approved the establishment of a Promissory Note programme for the settlement of Inherited Local Debts and other contractual obligations of the Federal Government. The programme, which had been estimated to be at N3.4 trillion, would also be used to pay judgment debt and export grants.

The DMO said the benefit lies in the fact that “it will provide stimulus to the economy and unlock investment across a number of sectors currently having liquidity issues”. It will also have positive impact on the non-performing loan ratios of banks, which will in turn increase the banks’ capacity to lend and enable the Federal Government to formally recognise and account for its true liabilities in line with the International Public Sector Accounting Standards (IPSAS).

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It said it would also positively impact the economy because the debt would be sovereign instruments, negotiable and have liquid asset status.

Already, as at December 31, 2018, N331.12 billion Promissory Notes have been issued to oil marketers and state governments. The Federal Government would soon issue the Notes as the National Assembly approved them. According to the DMO, the liabilities covered under the programme were those from June 2017 backwards.

For us, these figures become more worrisome when viewed against the backdrop of the total public debt stock, comprising external and domestic debts of the Federal Government, the 36 states and the Federal Capital Territory, Abuja hitting US$73.208 billion (N22.38 trillion) recorded in June 2018.

The trend is very disturbing because of the likely negative effect on the developmental capacity of Nigeria, despite government’s financial managers’ argument that the rate of increase is within a manageable limit.

Financial experts at the International Monetary Fund (IMF) and the World Bank have advised that the revenue-to-debt ratio is unsustainable and portends a serious danger for the future generation of Nigerians.

While the effect of the increasing debt may not be immediately felt in totality, it could be catastrophic in the long-term with a chunk of revenue consumed by debt servicing to the detriment of infrastructural development. This, sadly, is the current reality as N2.140 trillion from the N8.8 trillion proposed 2019 budget has been earmarked for debt servicing, representing about 25 per cent of the country’s total budget allocation.

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The size of government borrowing in the domestic financial market also continues to be a major source of concern as this has, in no small measure, affected the chances of the real sector to access funding at a reasonable cost.

Our view is that the government must avoid the profligacy of the past, which plunged the country into serious debt crisis that assailed it in the early 1980s and lingered till 2005. It was through the persistent effort of the Obasanjo administration between 1999 and 2007 that the country’s external indebtedness was drastically reduced after paying off the debt owed the Paris Club of international creditors.

It is sad that the present government has begun the process of piling up debts again, thus giving the indication that our leaders have not learnt anything from the past.

One way out of the debt predicament is for both the federal and state governments, as a matter of urgency, to take deliberate steps aimed at cutting the cost of governance while also reducing the country’s recurrent expenditure. That way, the country would have started to halt the journey to a debt trap that would spell disaster for generations yet unborn. 

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