The alarm raised by the Nigeria Employers’ Consultative Association (NECA) over the nation’s rising debt burden should worry the nation’s economic planners. NECA’s warning came after the release of the third quarter report of the Debt Management Office (DMO) on the nation’s debt burden and the 2019 budget assumptions.
The Director-General of NECA, Mr. Timothy Adewale, explained that the debt burden was worrisome because N2.14trn or 25 per cent of the 2019 budget of N8.7trn would be used to service debts. NECA also observed that continued huge borrowing by the Federal Government from the domestic market will hamper the real sector of the economy from accessing funds for expansion and growth. Apart from NECA, the Manufacturers Association of Nigeria (MAN) and some politicians have cautioned the government to limit the amount spent on debt servicing.
We believe the concerns of NECA and MAN are genuine and deserve due attention from the government. Currently, Nigeria’s total debt profile has grossed over N22.7trn, with domestic debt constituting over 80 per cent of the total debt. The figures from the DMO show that both the domestic and external debts have been on a steady rise over the last three years.
In 2016, Nigeria’s debt burden was over N16 trn, an increase of over N4trn over that of 2015. In 2019 fiscal year, government plans to borrow about N1.6trn from the domestic capital market to partly finance the budget. On the average, government has spent 25 per cent on debt servicing. In 2017, government spent N1.8trn on debt servicing. While N1.455trn went into domestic debt servicing, N181.40bn was spent to service external debt. In 2018, government allocated N2.2trn in the budget for debt services.
Of this amount, N1.766trn was for domestic debt servicing, N250bn for external debt servicing, and N190bn for Sinking Fund to retire matured loans. As a result of the forthcoming general election, the nation’s total debt profile is expected to rise further by the end of the financial year.
No doubt, the nation’s increasing debt has had a deleterious effect on the economy. It has hampered the execution of the capital components of the budget. The government has often explained that these challenges were as a result of late implementation of the budget and shortfalls in anticipated oil and non-oil revenues. There is nothing wrong with borrowing if it is well utilised. At the same time, it is important to service one’s debts. However, it should be done in such a way as not to constrain the real sector from accessing funds for businesses that will hasten economic growth.
It is obvious that the government has borrowed so much in the last three years from the domestic market and foreign financial institutions. Unfortunately, most of these loans are yet to have much impact on the development of infrastructure and the living conditions of Nigerians. Although government has insisted that the borrowing ratio to our Gross Domestic Product (GDP) is still within acceptable threshold, the high cost of governance and rising recurrent expenditures are worrisome.
The managers of the nation’s economy should realise that the rising debt profile is a sign that all is not well with the economy. Moreover, the economy is still vulnerable to both domestic and external shocks and could relapse into recession if the debt is not well managed.
Therefore, it is disturbing that the domestic debts of the 36 states and the Federal Capital Territory are on the increase with little to show for the loans they have taken. The accumulated debts of the states have reached an all-time high of over N4.5trn. It was N2.6trn as at June 30, 2015. To check excessive borrowing, we urge government at all levels to adhere strictly to the provisions of the Fiscal Responsibility Act 2007 which in Section 41(1)(a-b), (2) and Section 42(1-3) stipulate the framework for debt management and limits on consolidated debt of Federal, State and Local Governments.
Let the Federal and State governments reappraise their financial profiles and avoid excessive borrowing. They should also prioritise projects and ensure prudent management of their resources. Government should heed the advice from the International Monetary Fund (IMF), the World Bank, and other stakeholders on the need to check rising debts and diversify economy.