Borrowing could help, but better management of resources is needed
Disturbed by the reckless accumulation of debts, the International Monetary Fund (IMF) has consistently warned Nigeria of the consequences, particularly of the servicing costs which could consume substantial amount of government revenues. The federal government has, however, continued to sneer at the concerns as the amount of borrowing keeps piling up, raising the spectre of another debt trap in future.
Last week, data released by the Debt Management Office (DMO) painted a pathetic picture. It said the country's external debt has risen to $18.9b (N5.8trn) while domestic debt has climbed to N15.9b, bringing the total debt stock to N21.7 trillion ($70.92b) as at the end of December 2017. Meanwhile, the nation's total indebtedness stood at N12.06tn in March 2015 and N17.4b at the end of December 2016.
To compound the situation, many of the states have crossed the red line against debt accumulation. In 18 states, their debt profiles exceed their statutory revenue by more than 200 per cent. In Lagos, Osun and Cross River States, debts exceed revenues by almost 500 per cent. Lagos, Kaduna and Edo chalked up the most external debts running into billions of dollars. Expectedly, the Fiscal Responsibility Commission is most uncomfortable with the trend, as the development is contrary to dictates of the DMO on debt sustainability. According to the guidelines, the debt status of each state should not exceed 50 per cent of the statutory revenue in the previous 12 months.
However, the Minister of Finance, Mrs. Kemi Adeosun is less worried, arguing that the country has the capacity to repay its debt obligations. The federal government is currently in the forefront of the extensive external borrowings in a bid to achieve 40 to 60 per cent foreign to local borrowing ratio. Adeosun has said repeatedly that Nigeria's debt-to-Gross Domestic Product ratio is one of the lowest in the world. "I am not worried at all. Our borrowing is sustainable and well managed," she said. "We took a decision to reflate the economy. When your income has gone down, the only place you can go is to borrow. We borrowed and invested heavily in infrastructure and then increased our revenue so that we could pay back the debt."
To be sure, we have nothing against the federal government or indeed the states borrowing externally or from the capital market as this is the standard practice world over. The aim of borrowing is to help the government to attain their developmental needs in the areas of infrastructure, health, education, power and transportation. But it is one thing to raise these funds and it is another thing to ensure accountability and judicious use. Over the years the federal and states governments have accumulated huge debts at public expense which were largely frittered away.
Indeed, many of the current governors on assumption of office complained of inheriting heavily indebted states on account of funds taken from the capital market by their predecessors. Incidentally, many of those governors have gone to secure their own loans which they also expect future governments in their states to repay. Yet, at $19 billion, the external debt is less than 50 per cent of the crisis point we attained in 2005 when the country, under President Olusegun Obasanjo, paid $12b to the Paris Club of creditors for a debt relief of $18b.
Aside the fact that many of the states can hardly meet their routine obligations after servicing their monthly debts, most of the loans were not deployed to tangible projects. It is therefore incumbent on the authorities in Abuja and the 36 states to reflect on the implications of the debt burden on the future of our country.