NIGERIA'S RISING DEBT PROFILE

By NBF News

The recent disclosure by the Senate that Nigeria's public debt has risen to 'unsettling' proportion should be a matter of great concern. The figure sourced from Debt Management Office (DMO), the nation's custodian of public debts, shows that Nigeria's current debt stock stands at a record high of N6.02 trillion (equivalent of $39.72bn).

Of this amount, domestic debt takes the lion share of N5.21 trillion, representing 17.52 percent of the Gross Domestic Product (GDP), while external borrowing is put at N1 trillion, which translates to 2.76 per cent of the GDP. This is $4 billion above 'crisis level' of $35 billion received in 2006.

Chairman of the Senate Committee on Local Government and Foreign Debts, Senator Ehigie Uzamere, who revealed the latest public debt profile at the inauguration of the committee in Abuja, expressed the same worry that many watchers of our economy have underlined on the increasing debt profile of the country, especially in the last four years. According to Senator Uzamere, this 'is unsettling and calls for serious concern'. That implies that government has been borrowing so much with little to show for the credit facility obtained.

This development is disturbing. The figure represents a significant leap of $2 billion over the total debt stock in July. Beyond that, the latest figure shows a steady rise in our public debt profile for four years now. From $22 billion in 2007, $23.228 billion in 2008, $25.8 billion in 2009 and $32bn in 2010. This is simply a 'red flag' on our economy and portrays the government as a spendthrift.

We decry this rising debt profile and government's inability to check its propensity to borrow and spend. It has become fashionable for government to see nothing wrong with its borrowing pattern on the excuse that it is still within the globally acceptable ceiling of 40 percent of the GDP. Admittedly, there is nothing prima facie wrong with borrowing. The problem, however, is the utility of the funds borrowed and areas where they are invested. Sadly, in Nigeria, often loans taken are not always invested in productive sectors of the economy.

Government should not wish away the danger of our rising debt profile. Our advice has always been: borrow cautiously and spend prudently. The present concern over the debt profile would not have attracted much hoopla if government has shown, in concrete terms, what it has achieved with previous loans obtained from both local and external creditors. It is obvious that there is no due diligence on the loans the Federal government has taken in recent years. Worse still, no proper supervision by the creditor institutions. The risks to the economy of not keeping our public debts to acceptable limits is huge.

Our fledging democracy may also not be spared the inherent risks because of the huge financial resources needed to run the different tiers of government. One of the immediate implications of the present debt profile is that Nigeria may be sliding back to the years of debt overhang few years after it exited from the London and Paris clubs of creditors. This is a big challenge to the current coordinating minister of the Economy and Finance Minister, Dr. Ngozi Okonjo-Iweala who played a pivotal role in Nigeria's previous debt exit. A pragmatic approach to why we are in this present quagmire is crucial.

One of such steps should be a deliberate effort to reduce the present high cost of governance at all levels in the country. Last year alone, government took a foreign loan of $34 billion, representing 16 percent of our GDP just to 'service governance' at the Federal level. This is scandalous, as a huge percentage of the federal budget is spent on the welfare of politicians, at the expense of other priority areas.

In order to reduce our public debt profile, fiscal discipline must be embraced by government, its officials and agencies. That is the essence of the Fiscal Responsibility Act that emphasizes accountability and transparency in the management of public finances. This must go hand in hand with a deliberate effort to keep our debts within manageable proportions. The onus is on the DMO to ensure an effective management framework that will address our national debt profile.