Government must be circumspect in piling up debts
Despite being bullish in its reaction, the federal government will do well to heed recent warnings about the growing debt being incurred by the country. Disturbed by the reckless accumulation of debts, the International Monetary Fund (IMF) has consistently warned Nigeria of the consequences, particularly of the servicing costs which could consume substantial amount of government revenues. The federal government has, however, continued to sneer at the concerns as the amount of borrowings keeps piling up, raising the spectre of another debt trap in future. Amine Mati, the IMF senior resident representative for Nigeria, while speaking on regional economic outlook for sub-Saharan Africa – capital flows and the future of work, in Abuja, said Nigeria spends as much as 50 per cent of its revenue to service debts.
The IMF warning is instructive enough to those in authority that if this current trend is not quickly checked, a time will come when economic activities will be grounded because a substantial portion of the country’s income will be used only to service debt. The main concern was about Nigeria spending more of its resources to pay interests on loans without any commensurate efforts to increase revenue.
To affirm the logic in IMF concern, the half-year activity report rolled out by the Central Bank of Nigeria (CBN) showed that whereas Nigeria spent N687.37 billion to service debts as at June 2017, the figure rose to N941.99bn in June 2018, which means that our debt service charge increased in 2018 by as high as 37.04 per cent. It is all the more disturbing that a country which obtained debt forgiveness and gloriously exited the Paris Club only in 2005 has built up its debt profile again to whopping N24.387 trillion in 2019.
There are several questions begging for answers: How sustainable is this in the face of the allocation of 70 per cent of our annual budget for recurrent expenditure? What will be the size of our capital budget in the next few years with 50 per cent of our revenue target diverted to service debts? Given that the projects on which the loans are being expended are not income generating with some of them, like the railways, being subsidised, how shall we pay back?
Meanwhile, we must state that borrowing is not evil in itself. Every nation borrows. If the aim of borrowing is to help the government to attain their developmental needs in the areas of infrastructure, health, education, power and transportation, it is a laudable idea. But the main concern is that over the years, the federal and states governments have accumulated huge debts at public expense which were largely frittered away. Therefore, borrowing must be done with a well thought-out investment initiative conceived to yield maximum benefits. Just recently, the Federal Executive Council renewed efforts to secure $8.7 billion loan to finance rail projects with a charge to the Minister of Transportation, Rotimi Amaechi, to convert $3 billion from its hitherto concessionary loan to commercial loan because the borrowing Chinese agency said it could only make $5.7 billion concessionary loan available. This, many experts believe, is a red flag.
Unfortunately, whenever the government is confronted with the question of the danger inherent in continuous borrowing, the federal government always claims that Nigeria’s debt-to-GDP ratio is one of the lowest in the world without bearing in mind that debt in comparison to GDP is only sustainable when the revenue generation is high. In the case of Nigeria, while the debt profile is rising and with it our population, the resources are dwindling. We therefore join the IMF to caution the federal government on the danger of the current borrowing spree.