Mounting Debt Signals Danger for Economy, NECA Warns

Chris Uba

The Nigeria Employers’ Consultative Association (NECA) has raised the alarm over the country’s mounting debt burdens following the release of the third quarter report of the Debt Management Office (DMO) and the 2019 budget assumptions, saying the increasing debt burden could have negative implications on developmental capacity of the economy.

The Director General of NECA, Mr. Timothy Olawale, said at a forum in Lagos yesterday that the debt burden was worrisome and needed to be checked.

Olawale said the debt burden was worrisome because about 25 per cent of the 2019 budget size of N8.8trillion amounting to N2.140trillion was going into servicing of debts.

He also said that the federal government’s continued borrowing within the domestic market was limiting the real sector from accessing funding for expansion and growth.

“The real sector should be able to access funds which should ultimately lead to increased employment opportunities within the economy.

“’Latest figures released by the DMO showed that government’s domestic debt profile rose to N15.814 trillion in September, 2018 from N15.629 trillion in June, 2018 (1.19 per cent increase),” Olawale said.

He said that the amount proposed for debt servicing in the 2019 budget could have a negative effect on the developmental capacity in spite of government’s financial managers’ argument that the rate of increase was within a manageable limit.

Olawale cautioned that while the effect of the increasing debt might not be immediate in totality, it could be catastrophic in the long term with a chunk of revenue consumed by debt servicing to the detriment of infrastructure development.

He urged the federal and state governments to take steps aimed at cutting the cost of governance and recurrent expenditure.

He added that “This trend, which is very disturbing, could have a negative effect on the developmental capacity of Nigeria despite government’s financial managers’ argument that the rate of increase is within a manageable limit.”

He noted that “Financial experts at the International Monetary Fund (IMF) and the World Bank have in fact, advised that the revenue-to-debt ratio is unsustainable and it portends a serious danger for the future generation.”

Olawale expressed that: “While the effect of the increasing debt may not be immediate in totality, it could be catastrophic in the long term with a chunk of revenue consumed by debt servicing to the detriment of infrastructural development. This, sadly, is the current reality as N2.140 trillion naira from the N8.8 trillion Naira proposed 2019 budget, has been earmarked for debt servicing, representing about 25 per cent of the total budget allocation.

While discussing the implication of government’s huge borrowing in the domestic market, he stated that: “The size of government borrowing in the domestic financial market also continues to be a major source of concern as this has in no small measure, affected the chances of the real sector to access funding at a reasonable cost. He advised that “the federal and state governments, as a matter of urgency, must take deliberate steps aimed at cutting the cost of governance and recurrent expenditure. Government also needs to start paying serious attention to workable investment schemes, collaborating strongly with the private sector which is the engine room for economic growth.

The NECA DG concluded that “government has to recognise the important role of the private sector in building a robust economy, as oil revenue alone is not enough to place the country on the path of sustainable development. Government must therefore, make commitment to facilitate a favourable environment with policies that will attract private investors.”