NIGERIA'S RISING DOMESTIC DEBT PROFILE
Within the past few weeks, notable individuals and financial institutions have raised an alarm on the nation's rising domestic debt stock and the likely unpleasant economic and political consequences if it is not urgently
checked. Only last month, immediate past Governor of the Central Bank of Nigeria (CBN), Prof. Charles Chukwuma Soludo, raised the red flag on the economy. He alleged that the ship of the economy is tottering and urgently in need of rescue measures. Indeed, he said, 'something will have to give', if the Federal Government fails to retool the economy.
He expressed deep concern over the burgeoning budget deficits and rising domestic debt as well as the gradual depletion of the Excess Crude Account. He predicted bumpy roads ahead if excessive domestic and external borrowing and increasing government expenditure are not curtailed. His warning, however, was simply dismissed by the authorities as that of an 'alarmist and a prophet of doom'.
Since then, other credible persons have raised similar concerns. The latest came from former Finance Minister and current Managing Director of the World Bank, Dr. Ngozi Okonjo-Iweala. Speaking at the recently concluded annual meetings of the World Bank/International Monetary Fund in Washington DC, USA, the World Bank boss warned the Nigerian government to carefully watch its rising domestic debt profile, as it portends unpleasant consequences for the country.
According to her, private sector participation in the economy would be adversely affected with concomitant effect that might bring down the economy and the political house along with it. She said that at the present level of borrowing within the economy, Nigeria's domestic debt stock has dealt a heavy blow to the Gross Domestic Product (GDP), which measures the aggregate contributions of goods and services produced in the country.
Dr. Okonjo-Iweala, by all accounts, is not a neophyte in public finance. She is very familiar with the workings of Nigeria's economy. She played a key role in Nigeria's Paris Club debt relief in 2005, as Finance Minister. As an insider in the World Bank, she certainly knows what she was talking about. Her warning must not be ignored. Government should pay heed to her advice immediately, and not treat it as a political statement.
Also, recently the Debt Management Office (DMO), the custodian of the nation's debt profile, issued a similar warning showing a rising domestic debt and its likely consequences. According to the DMO, a hefty 85 percent of Nigeria's public borrowing comes from the domestic market, while only 15 percent represents external debt. This has ominous economic implications. It is not hard to see how our country got into this quagmire. At the moment, the total domestic debt stock is N3 trillion, up from 2.1 trillion in 2009 and N1.7 trillion in 2007. This is alarming. A combination of factors such as lack of fiscal prudence, increasing recurrent expenditure over the years and bloated government bureaucracy, among others, are responsible.
Certainly, our economy does not yet have the capacity to soak up this quantum of domestic debt stock mainly because most of the borrowings are not channeled into productive sectors of the economy. Some of the debts are used to service frivolous political interests at the detriment of the economy and the general well-being of the impoverished citizens who bear the brunt of the fallout, instead of the rich who are supposed to shoulder the burden since they are the main beneficiaries of the mismanagement of borrowed funds.
We are unimpressed that the National Assembly has not lived up to its oversight duty of checking excesses of the Executive. We also hold our budget planners responsible for this unpleasant situation the country has found itself. This is because the figures presented by budget experts, oftentimes, do not represent the realities on ground. This results in high budget deficits, and slow growth in the economy. Overall, government should put necessary measures in place to check this alarming domestic debt profile. We can only ignore these timely warnings to our peril.