There has been much concerns about rising debt profile of the federal and state governments in Nigeria with institutions and experts within and outside the country warning the country to be mindful of consequences of such appetite which they said could lead to another debt trap for the country.
The Debt Management Office (DMO) statistics put the debt portfolio of the nation at N21.73 trillion as at December, last year. About N1.6 trillion of the debt, according to the DMO, was spent on debt servicing and that the debt stock rose by N1.327 trillion between September and December 2017.
According to the Director-General, DMO, Ms. Patience Oniha, the Federal Government’s domestic debt at the end of last year, stood at N12.589 trillion. The 36 states and the Federal Capital Territory (FCT) had a domestic debt overhang of N3.348 trillion. The combined external debt of the federal and the state governments stood at N5.787 trillion.
While analysts have described the debt profile of the nation as worrisome, the Federal Government has assured all that there is no cause for alarm. Finance Minister Mrs. Kemi Adeosun said the government was embarking on a borrowing spree to provide national assets to aid the growth of the economy.
But, what is more worrisome is the precarious fiscal health of Nigeria’s component states. Recently, the Fiscal Responsibility Commission revealed debt burdens of the states was far in excess of their revenues with no fewer than 18 of the 36 states borrowing over 200 per cent of their earnings, salaries of public sector workers unpaid in 23 states, the need for a radical overhaul of our governance structure is all the more urgent.
According to the 2016 Annual Report of the Fiscal Responsibility Commission (FRC) showed that debt exposure of three states comprising Lagos, Osun and Cross River States were between 480 and 670 per cent of their gross revenue.
The report which was released in Abuja by the FRC, noted that the debt levels of the states were contrary to the guidelines of the Debt Management Office (DMO) on debt sustainability. The DMO guideline stipulates that the debt to income ratio of states should not exceed 50 per cent of their statutory revenue for the preceding 12 months, but the FRC report indicated that most states have gone past this threshold.
It is worthy of note that one of the major implications of the nation’s rising debt profile is the increasing burden of interest payment. This is especially true as the country has been making less money than before as a result of falling crude oil price in the international market.
In fact, the country’s debt sustainability has become an issue of debate as some experts have argued that Nigeria’s indebtedness is no longer sustainable.
The argument is that with reduced capacity to earn money, the country’s ability to service debt and repay the principal has been impacted. This, the arguments goes, has rendered the nation’s debt unsustainable even though the total debt to Gross Domestic Product ratio is still low.
Recognising the huge service payment on domestic debt, the Federal Government has yielded to the advice to borrow more from the foreign debt market and has plans to borrow $3bn from foreign sources in order to refinance some local debts. Oniha said the new strategy would involve reducing the country’s domestic debt to 60 per cent, while raising the external component to 40 per cent.
We believe most Nigerian component states need to develop other creative ways of increasing their Internally Generated Revenue (IGR). And if they must borrow, it must be for developmental purposes. The trend of different administrations embarking on borrowing without a clear cut plan on what to do with the loans would only impoverish the states the more.
What is paramount is that the federal government and the states should reflect on the implications of the debt burden on the future of our country. Today, many of the states can hardly meet their routine obligations after servicing their monthly debts. Unfortunately, most of the loans were not deployed to tangible projects.
Already, regulators have described the debt situation in the state as one that portends a gloomy prospect for the economy of the states. The states need to reduce the cost of governance and cut their coats according to their clothes.
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