There are no encouraging words from the Debt Management Office (DMO), the official custodian of the nation’s public debts, as its latest data indicate a 40 per cent increase in the nation’s external indebtedness. The nation’s foreign debt stock is now $9.38 billion, up from $6.7 billion recorded last year. This calls for extreme caution on borrowing by the government.
The local component of the total national debt currently stands at $47.6 million (N7.4 trillion), up by 37.1 percent from N6.49 trillion at the end of March, 2013. Accordingly, Nigeria’s total public debt has risen to N10.4trn at the end of June this year, as against N10.1trn in March this year, an increase of N300bn in just three months. This increase may seem marginal on the surface, but to borrow the words of the DMO boss, Dr. Abraham Nwankwo, “it is wiser to under-borrow than over-borrow”.
Sadly, successive governments in the country, at both federal and state levels, have been imprudent in the management of loans taken from domestic and foreign financial institutions. A nation’s debt stock or its ability to repay the debt is largely a function of its readiness to embrace financial discipline through judicious use of the facilities obtained.
The continuing rise of our public debt is due to a combination of factors, which include financial indiscipline, misappropriation and misapplication of loans taken. This is clear from the figures released last week by the DMO, which indicate that the $9.3bn external debt profile represents an increase of $500m or 5.6 percent over the $8.8bn figure recorded as at December 31, 2013. Out of this figure, debt by the 36 states and the Federal Capital Territory, Abuja, is about N2trn or 19.82 percent of the total debt stock.
Put together, even though the external and domestic debt stock to Gross Domestic Product(GDP)ratio is now 12.51 percent, which is reportedly lower than the 26 percent debt to GDP ratio that is considered healthy for countries with Nigeria’s GDP, it is necessary that we watch our penchant for indebtedness.
As we have cautioned in similar editorials in the past, there is nothing wrong per se in borrowing, provided such loans are invested in critical infrastructure which can repay the loan in due course. But, when such borrowed funds are not well utilised, it harms the economy and could result in austerity measures, with attendant political backlash. Nigeria has had this harrowing experience in the past, and it can still recur if the current rising debt profile is not checked. Fiscal discipline, judicious use of borrowed funds and checking wasteful expenditure and graft will help reduce the risk of Nigeria sliding back to the infamous years of excessive borrowing that put the economy on the cliff-hanger.
The fact that the current public debt is N10.4trn is something to worry about despite assurances that it is sustainable. The amount is over N6trn higher than those of the two past years. For instance, that of 2012 was $58.04bn or N4.47trn.The implication is clear: there is danger ahead if government at all levels do not curtail their penchant for unbridled borrowing and spending on unproductive projects that have no positive impact on the economic development of the country and the welfare of the citizenry.
It bears repeating that the latest national debt portfolio and the debt service ratio are inexpedient to the socio-economic development of the country. The figures released by DMO last year showed that a hefty N591.76bn was spent on servicing part of our debt in 2013, while N712bn and N684bn respectively would be used to service the national debt this year and next year. If this happens, the economy may be under tremendous pressure before it can achieve the projected 7.25 percent growth this fiscal year.
With 2015 elections feverishly close, there is even greater concern that the nation’s debt profile will increase even much higher. This trend comes with the risk of the country becoming insolvent, particularly now that federally collectible revenue is declining and external reserve is falling. In all of these, our advice to government is to borrow cautiously and spend prudently.
