ANOTHER LOOMING DEBT TRAP

Government must be circumspect in accumulating more debts

That the debt being accumulated by both the federal government and the 36 states is now growing faster than the rate of the country’s Gross Domestic Product (GDP) is no longer news. What is worrying is that the authorities don’t seem to care and are borrowing more every day, mostly for controversial projects. That bodes ill for the future of our country. Therefore, the warning by most analysts is that the country may be heading for another debt trap if restraint is not exercised.

The public debt stock of the country stood at N31 trillion or $85.9 billion as at the end of June this year, according to the Debt Management Office (DMO), representing 8.3 per cent rise from N28.628 trillion in March 2020. “The increase in the debt stock by N2.381 trillion or USD6.593 billion was accounted for by the USD3.36 billion budget support loan from the International Monetary Fund, New Domestic Borrowing to finance the Revised 2020 Appropriation Act, including the issuance of the N162.557 Billion Sukuk, and Promissory Notes issued to settle Claims of Exporters,” said the DMO. “Additional Promissory Notes are expected to be issued in the course of the year, this, and new borrowings by state governments are also expected to increase the public debt stock.”

Ordinarily, 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 it is one thing to raise these funds and it is another thing to ensure judicious use. While the federal government continues to harp on fiscal discipline, improved revenue generation, rational allocation and efficient use of resources, there is nothing on ground to show commitment to these ideals.

We must recall that in 2005, Nigeria successfully negotiated a complicated debt write-off deal of about $18 billion after a cash payment of approximately $12 billion to free the nation from the Paris Club debts of over $30 billion, most of which were accumulated interests and charges. Chunks of these loans were secured in the 1980s to fund what turned out to be white elephant projects and the profligacy of the various administrations at that time.

We are even more worried by the debts being accumulated by the states. Without the requisite oversight by their respective state legislature, a large chunk of these funds could not be accounted for. In fact, some of the governors inherited states that are heavily indebted on account of debts accumulated by their predecessors.

The current perception of the populace is that majority of the 36 governors have failed to plug the leakages and wastes, which over the years have become institutionalised in their states. Aside the fact that many of the states can hardly meet their routine obligations after servicing their monthly debts, most of the loans were not deployed to tangible projects. It is therefore incumbent on the authorities in Abuja and the 36 states to reflect on the implications of the debt burden on the future of our 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. That government, at all levels, has continued to sneer at these concerns, raises the spectre of another debt trap in future.