The increasing debt stock: what does a loan-dependent budget mean for Nigeria?
“The United State of America has the largest debt stock in the world and is still regarded as the most powerful economy in the world. However, in Nigeria’s case, her huge debt profile has not increased economic development nor foster economic growth, the reasons are not far-fetched --you can’t keep doing things the same way and expect different results…”
Nigeria, the biggest economy in Africa, has been hemmed in a web of debt stock for years—well, that is not a thing to be surprised by. Both developed and developing countries get loans to fund governmental projects. What should raise concerns is how judicious the borrowed funds are expended on governmental projects. This brings to the phenomenon of white elephant projects in Nigeria.
According to the Debt Management Office Nigeria’s debt profile stood at N31.009 trillion as of June 30, 2020. The minister of finance, budget and national planning had recently disclosed that a fresh request to take a $1.2 billion loan from Brazil is in consideration. And based on existing approvals, according to the Minister of Finance, Budget and National Planning, Nigeria's total public debt may hit N38.68 trillion by December 31st, 2021. In a recent development, according to the gross domestic product numbers released by the National Bureau of Statistics on Saturday, 21st November, 2020, Nigeria recorded a contraction of 3.62% in the third quarter of 2020. The nation has been hit with its worst recession.
Should we be worried now?
In the past five years, the Nigerian government has spent about 34.8 trillion naira comprising both recurrent and capital expenditures in the ratio of 73% which means that only about 19% of the debt load is what is being invested in further developing nations through the provision of important infrastructures. The rest were spent on recurrent expenditures such as payment of salaries. With the plummet in Oil prices due to the harsh effect of covid-19 and volatility of oil prices, even our national budget will be financed on a deficit through borrowing.
Nigeria’s increasing debt stock is now a thing of worry as the Nigerian government has achieved so little with so much resources at her disposal. Borrowing can be highly beneficial to the economy. If harnessed and utilized properly, can be a tool to achieving growth and developmental goals. The United States of America has the largest debt stock in the world and is still regarded as the most powerful economy in the world. However, in Nigeria’s case, her huge external debt profile has not increased economic development nor foster economic growth. With the increasing debt profile, Nigeria is wallowing in severe debt repayments and amortization with little or nothing to show for it. The reasons are not far-fetched:
Embezzlement, corruption and mismanagement of borrowed funds: it is no longer alien to Nigerians when a public office holder is being probed or arraigned in court for alleged embezzlement of public funds. As sad as it is, a huge chunk of borrowed funds are siphoned into private accounts leaving the economy in ruins of severe debt payments and amortization.
Poor management on the part of government, leaving loaned funds into incompetent hands.
What can the Nigerian government do?
No nation can survive in "financial isolation". There has to exist some kind of international relations amongst countries. Relations which may include trade, exchange and seeking aids when local resources are insufficient to achieve desired level of development. Countries seek foreign aides in order to accelerate the pace of economic growth in the country and in this race for economic prosperity, the Nigerian government has acquired a huge amount of money from its international communities with intention of providing public goods and services such as construction of railways, good motorable roads to mention a few. But these fiscal attempts have only plunged the economy into years of debt repayment with no positive yields.
A loan dependent budget means that revenue accruing to the government is insufficient to fund the government’s expenditure and this will disallow other revenue from being invested back into the economy to increase income and employment as all proceedings will be channeled into loan repayments. Government should make sincere attempts to entrust loaned resources to capable hands and also increase accountability on its part. The private sector investment is key to the growth of the economy, there should exist a favorable climate that allows for Small and medium Scale businesses to thrive in the economy.
Get all latest content delivered to your email a few times a month.