Rising debt profile

| March 8, 2013 | 0 Comments

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THE rising debt profile of the country both at the federal and state levels is becoming a source of concern to many Nigerians. This is understandable because the country exited from a debt trap less than a decade ago. Before the exit, Nigerians suffered the humiliation of being a debtor nation that could not freely implement an autonomous national development agenda, a nation that had to submit her annual budgets for the approval of multilateral agencies like the International Monetary Fund (IMF) and the World Bank. This, definitely is not the route Nigerians would like to take again. It is also exactly for the same reason that many Nigerians are increasingly worried about the growth in the country’s debt profile again.

There are two opposing sides within government in respect of the debt issue. On one side, is the cautionary group led by the Central Bank of Nigeria (CBN) which has expressed concerns over the rising levels of debt in the country. The CBN Governor, Mallam Sanusi Lamido Sanusi was quoted as saying that “we are borrowing more money today at a higher interest rate while leaving the heavy debt burden for our children and grandchildren”. He went on to advise the Federal Government not to allow “present and unborn generations inherit the heavy burden of foreign debt since Nigeria is currently in big danger because of it.”

The other school is made up of protagonists of more loans. This group is led by the Minister of Finance, Dr Ngozi Okonjo-Iweala, and the Debt Management Office (DMO). It also has the sympathy of International financial organisations. This group relies on two major arguments:  first, that Nigeria is under-borrowed in relation to other countries and her endowments. Nigeria debt-GDP (Gross Domestic Product) ratio is put at less than 20 per cent, which is within the country’s long term debt sustainability ratio. Second, the composition of the debt is skewed in favour of multilateral debts rather than private/commercial debts. The Minister of Finance was quoted as saying that “the country’s debt to GDP ratio will remain at a sustainable level of about 18.87 per cent even with the new loans” ,  arguing that the “loans were not only necessary for the Nigerian economy to grow but have been negotiated with multilateral institutions on highly concessionary terms.”

We are not unaware of the economic argument in support of debt. Debt is not inherently bad. However the caveat is the efficiency of the debts, and the transparency and accountability of the government. Nigerians cannot see a relationship between the rising debt profile and infrastructure development in the country. Going round the states of the federation, most objective observers would be appalled at the level of poverty, misery and unemployment around the country. The social and economic infrastructures are in a terrible state of disrepair. Just few kilometers outside the states’ capitals, one is confronted with a picture of total absence of government presence. Nigerians are simply left to their own fate.

Beside the situation at the national level, the rising debt profile at the state level is of greater concern. Governors borrow without appropriate oversight by the respective states’ Houses of Assembly. Huge debts are left for succeeding administrations, without evidence that the money borrowed, had been invested in visible developmental projects, except in very few cases. Debts are contracted with state allocations from the federation accounts pledged as collateral hence the revenue allocation that comes to the state every month after the deduction of debt commitments to various banks leaves very little for development purposes. In fact, in some cases, workers’ salaries are not paid or are delayed for several months.

According to the DMO, the debt portfolio of the country’s 36 states and the Federal Capital Territory, FCT, rose from N1.42 trillion in December 2011 to N1.86 trillion by the end of June 2012. The leading debtor states in their order of indebtedness are Lagos, Cross Rivers, Bayelsa, Rivers, Delta, Imo and Kaduna. Crisis torn states of Borno and Yobe are the least indebted.

However, on the basis of debt solvency and liquidity ratio analysis relative to revenue inflow to states, Cross River is the heaviest debtor, with the highest burden rating of 138.86 per cent as at December 2011. Bayelsa and Lagos states with a burden score of 104.93 per cent, and 73.21 per cent came second and third respectively.

This trend should not continue. Nigeria has a history with debt that should not be repeated. It is a paradox that as oil prices are rising, and oil export revenues are increasing, the governments have chosen to borrow more. We are on the side of majority of Nigerians who feel very concerned about the continued borrowings by the state and federal governments.

There is a need to tighten the conditions for borrowings, especially at the state level. The debt ­‑ GDP ratio may be low at the national level; the same is not necessary true of debt revenue ratio at the various states. Ordinary and future Nigerians are the ones that bear the brunt of the current unfettered borrowings. We call for restraints on future borrowings by all the levels of government.

Culled from :Here

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