NIGERIA RISING DOMESTIC DEBT PROFILE

As Nigeria security challenges persist
unabated, the Federal Government also seems
helpless in tackling the nation’s rising
domestic debts profile. As the debt continues
to rise at unprecedented rate, and even more
drastically in the recent time, the nation’s
image is becoming dented. It is regretted that
the Federal Government had failed woefully
in efforts to reduce the nation’s debt profile.
Statistics obtained from the Debt Management
Office indicates that the domestic debts had
increased from ₦5.966 trillion ($37.71 billion)
at the end of the first quarter ended March
31, 2012, to ₦6.153 trillion ($38.89 billion) at
the end of the second quarter ended June 30,
2012. Indeed, the figures represent an
increase of ₦187 billion or three per cent over
the figure recorded in the first quarter.
Considering the economic implications of the
nation’s rising debt profile, it becomes a
major policy issue requiring extensive public
debates and discourse. More importantly,
heavy indebtedness of the nation remains one
of the major challenges facing most
developing countries at the beginning of the
21st Century. Indeed, high levels of domestic
national debt are likely to be deleterious for
economic growth and development. It is also
true that any economy structured and
sustained by borrowing cannot achieve
economic prosperity.
Detailed report of the domestic debts shows
that the Federal Government bonds accounted
for ₦3.71 trillion or 60.37 per cent of the
money borrowed from internal sources as at
June ending. The unfortunate scenario is that
the impacts of the government bonds are not
actually felt by average Nigerians. It would
have been understandable if the bonds are
effectively employed by the government to
finance long-term investments. Of course, the
Nigerian treasury bills accounted for ₦2.08
trillion or 33.88 per cent, while Treasury
bonds accounted for ₦353 billion or 5.75 per
cent.
Similarly, the domestic debt component of the
total debt profile as at March 31, 2012 which
stood at ₦5.966 trillion, showed that the
Federal Government bonds accounted for
₦3.67 trillion or 61.44 per cent of the money
borrowed through internal sources.
The Nigeria attitude to borrowing is somehow
a national stigma and it calls for re-
orientation of our value system. Nigerians are
being misguided to believe that borrowing is
inevitable and sacrosanct for economic
growth. Whatever the likely benefits derivable
from the huge internal borrowing, it is bound
to have negative economic consequences on
the citizens.
The recent acknowledgement and lamentation
by President Goodluck Jonathan while
presenting the 2012 budget proposal to the
National Assembly that the country domestic
debt have been growing at alarming rates in
recent years is a further prove of the nation’s
economic instability. It is also worthy of note
the decision of the federal government to
earmark ₦560 billion for debt servicing in the
2012 budget. In my own view, debt servicing
cost of public debt is likely to crowd out
public investment.
We may also deduce from President Goodluck
Jonathan’s admission of the threats poised on
the nation by the high domestic debt profile
that this has called for serious national
rethink. It is also interesting to note that the
Minister of Finance, Dr. Ngozi Okonjo-Iweala,
had expressed in an unequivocal terms, she is
more worried with domestic debts than the
external’s.
With the current economic realities, it is
imperative that the nation should initiate a
comprehensive debt servicing plan. In
designing the plan, the government needs to
carefully re-examine the nation’s borrowing
culture with its attendant consequences. Let
me also state that leadership corruption
remains a factor affecting the national success
in the area of debt servicing. Of particular
interest is diversion of funds meant for debt
servicing by people at the helms of affairs.
With the current debt servicing initiative of
President Goodluck Jonathan, the nation is
bound to accumulate more debts in view of
the fact that he gave a caveat that the nation’s
debt should not go beyond 30 per cent of the
Gross Domestic Product (GDP). If the
administration is truly serious in its desire to
reduce the national debts, the set target or
ceiling will still largely constitute a burden.
The caution by President Goodluck Jonathan
on debt – GDP ratio when carefully analysed
shows that at the moment the debt to GDP
ratio is slightly less than 20 per cent. With
latitude of 30 per cent caveat, the government
may add up to 50 per cent of the current debt
level. This is indeed unacceptable, considering
the implications of these rates on the nation’s
economy.
Obviously, escalation of debt profile by the
Federal Government would continue to crowd
out the real sector of the economic and the
equities market. Of equal importance is the
fact that the capital realised from borrowing
is used to finance consumption rather than
investment. In a way, this government
tendency is having destabilizing effect on the
economy through increase in interest and
inflation rates. Without missing words, by
increasing those two rates, the government is
battering the economy.
From policy perspectives, the negative
impacts of domestic debts on economic
growth strengthens the arguments for
ambitious debt reduction through fiscal
consolidation. Another factor that coincides
with the domestic debt is the recurrent budget
deficit which also causes the nation to be
borrowing from Financial Institutions.
With the nation’s abundant human and
natural resources, the question that continues
to agitate mind is the reason for our
continuous borrowing both externally and
internally. This unanswered question poises a
lot of leadership challenges for the nation.
For significant reduction in the domestic debt
to be realisable, the task should not rest solely
with the presidency but there should be co-
operative efforts of all the stakeholders in the
nation’s economy. The National Assembly
equally has a vital role to play in revamping
the nation’s economy through debt reduction
initiatives and perhaps cut pays.
Without doubts, economic sustainability is
affected largely by the nation’s debt profile.
Our government’s high cost of borrowing can
inescapably trigger destabilisation and
disenablement of commercial lending rates of
over 20 per cent to the real sector. This will in
effect cause higher cost of production and can
as well blow up the inflationary trends.
No economy is known to have ever developed
with high inflationary trends and exploitative
borrowing rates. In other words, the nation’s
infrastructural deficits and poor living
condition of people are parts of the resultant
effects of persistent borrowing.
Again, high domestic debts are bound to put
pressure on the government at the point of re-
payment as this may cause the government to
neglect some key government priorities.
While introducing measures to reduce the
nation’s domestic debts profile, greater
attention needs to be paid to viable
investment initiatives. If the government can
ensure huge returns for private investors, the
impacts will be better felt by all and sundry
instead of continuous borrowing. Irrespective
of the present economic challenges,
government should stop paying lip service to
problem of national debt as this remains a
major obstacle to national development.