THE DANGER OF GROWING DEBTS…2
We should borrow with caution
On Monday, President Bola Tinubu signed the 2024 appropriation bill into law. If there is anything to read from the document, it is that the underpinning philosophy of this government seems to be that debt is not a problem, and that we can pile on more without serious consequences. Not only does the direction of spending reflect this mindset but there is also no serious effort to get a handle on borrowing and push the graph downward. Unfortunately, National Assembly members that are ordinarily supposed to exercise oversight on the issue are more concerned about their own privileges. If we have more revenue than projected, as the federal lawmakers would want Nigerians to believe, we should be reducing deficit, not increasing expenditure.
Considering most of the assumptions that informed the capital expenditures, the president and the 36 governors must understand that we cannot borrow our way out of the current fiscal mess. Since borrowing is extra money in circulation that is not backed by production, a profligate mindset is one of the worst ailments that can afflict a government. Meanwhile, all Nigerians are paying for the overdraft to government not just in increased public debts eventually but also, and more importantly, through increased inflation. To worsen matters, most of the federal government projects for which jumbo loans were obtained cannot even earn enough to fund their operations, leaving many to wonder how the debts would be repaid.
Despite being rated as the second biggest economy in Africa, Nigeria still ranks among the poorest nations in the world, essentially because dependence on oil receipts has been a burden due to poor governance in the sector. Besides, successive national governments have also not adequately used oil revenue to lift the ordinary Nigerian out of poverty. But the problem goes beyond the federal government to many of the 36 states where the fiscal outlook is increasingly darkening. Indeed, the rising debt profile has continued to elicit serious concerns, as most of the states have feeble revenue base, too weak to service the mounting debts. “It invariably becomes a debt problem and possibly a debt crisis,” said the Chief Executive Officer, Centre for the Promotion of Private Enterprise, Muda Yusuf, last year. “The government’s actual revenue can hardly cover the recurrent budget, which implies that the entire capital budget and part of the recurrent expenditure are being funded from borrowing. This is surely not sustainable.”
While it is standard practice for government all over the world to borrow, either externally or from the capital market within the country to finance projects, 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. If the aim of borrowing is to help government attain their developmental needs in the areas of infrastructure, health, education, power, and transportation, it is a laudable idea. The challenge, however, is that over the years, authorities in both the federal and states have accumulated huge debts at public expense which were largely frittered away.
If capital expenditure only covers or is ring-fenced around infrastructure to boost revenue/productivity, it would be understandable. But that is not the case even when increased money supply explains a part of the rising inflation, we have been experiencing for some time now. What goes for ‘capital expenditure’ in the budget are mostly construction of new office buildings, purchase of furniture, laptops/printers, cars, etc.
While we must deal with such fiscal rascality at all levels, it is also important to understand that the solution to our challenges can be found inwards. There is no record that any country has borrowed its way into prosperity.
