The nation’s rising debt profile and depleting foreign reserve ought to make all levels of government in the country to be more prudent in the management of their domestic and external loans. This is, indeed, one of the ways to overcome the current economic recession.
The latest statistics from the Debt Management Office (DMO) which show that Nigeria’s debt has risen to N16.29trn, an increase of N4.17trn in the last one year, July 2015 to June 2016, portends a worsening economic outlook. This is an alarm bell that must be heeded.
A breakdown of the debt statistics shows that external debt by the Federal and State Governments stood at $11.26bn or N3.19trn as at June 30, 2016. In July, 2015, the figure was $10.32bn. The amount used for the foreign debt status was based on Central Bank’s official exchange rate of N283 to the US dollar as of June 30,2016, and N197 as at December 2015.
Further highlights of the domestic debt status show that the Federal Government incurred a hefty N10.6trn as at June this year as against N8.4trn as at the same time, last year, meaning an increase of N2.21trn or 26.31 percent. The domestic debt of the 36 states and the Federal Capital Territory (FCT) as at June this year was N2.6trn. It was N1.69trn in July 2015, an increase of N810bn or 47.93 percent.
According to the DMO statistics, Federal Government Bonds remain the dominant instrument for borrowing from the domestic market. This accounts for N7.47trn or 70.46 percent of Federal Government’s domestic debt profile, while Nigerian Treasury Bills account for N2.9trn domestic debt profile by the Federal government.
Altogether, government will be living in denial if it fails to recognise the profound negative consequences of this rising debt profile. It portends high risk to the economy which is already in negative territory due to the present recession.
At the onset of the recession last year, both the CBN and DMO were upbeat that the country’s debt status was no high risk and within the international acceptable threshold.
Perhaps not anymore, as all indices indicate serious warning signals unless cautionary measures are taken through discretionary borrowing and investment of the loans into productive capital projects that will stimulate the economy.
As we have repeatedly cautioned, though there is nothing wrong per se in borrowing, Nigeria’s Achilles heel is the lack of prudent management of loans.
Though the Federal Government recently acknowledged that it was borrowing much from the domestic debt market and crowding out the private sector, DMO latest figures confirm that the borrowing binge continues.
This is against the backdrop of the DMO recent caution that refinancing 30 percent of the Federal Government’s domestic debt of N2.56trn within the next one year posed a high risk to the economy because of high interest rates. Only last week, the CBN declined to reduce the inter- bank-lending rate currently fixed at 14 percent, against the advice by the Minister of Finance, Mrs. Kemi Adeosun.
It needs repeating that rising debt profile without appropriate cautionary measures could further harm the economy that is already bleeding. For instance, in the 2016 budget, the Federal Government said it will borrow about N1trn from foreign financial institutions and N984bn from the domestic market.
Even though the debt ratio to our Gross Domestic Product is still within the acceptable international threshold, our concern is that financial discipline is yet to take root at all tiers of government in the country. The implication is profound.
With many states in financial insolvency, and barely surviving on bailout from the Federal Government, one of the ways forward is to borrow cautiously and spend wisely. Loans taken should be tied to specific projects that must impact on the development of the country and the citizens. They should also be closely monitored.
That is the hard lesson to be learnt from the latest statistics from the DMO. Federal and state governments must reappraise their financial profile, avoid over-borrowing, prioritise projects and ensure prudent management of scarce resources in keeping with the current economic reality in the country.