Debt and development

By IAfrica
In Nigeria
Aug 27th, 2014
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•We are gradually returning to the dark days

The implications of the magnitude of Nigeria’s internal and domestic debt for the country’s growth and development have been of enduring public interest. This important issue was once again brought to the fore by the President of the Institute of Chartered Accountants of Nigeria (ICAN), Mr Chidi Ajaegbu. While condemning the current time lag as well as low level of budget implementation in Nigeria, he also strongly cautioned against the subsisting practice of funding recurrent expenditure with debt.

In the words of the ICAN President, “The practice of funding recurrent expenditure through debt is unacceptable. It is tantamount to spending unearned income and therefore mortgaging the future by abating possible future economic development. This negative policy should be addressed urgently as it is unsustainable”.

We identify fully with Mr Ajaegbu’s concern with the persistent defects of Nigeria’s budgetary process, particularly the management of the country’s national debt. Without a purposeful, disciplined and efficient budgetary system, the country’s national socio-economic and developmental objectives will continue to remain in abeyance.

Of course, the incurring of national debt – internal and external – is not by itself the problem. In a situation of paucity of resources for rapid socio-economic development, debt can indeed be a viable vehicle for accelerating progress. This, however, presupposes that such borrowed funds are transparently and prudently utilised to boost infrastructure and stimulate the economy’s capacity for self-reliant development.

Unfortunately, as has always been the case, there is hardly anything to show for Nigeria’s level of indebtedness as the country continues to witness so-called growth without development and the majority of her citizens sink steadily deeper into poverty.

Figures recently released by the Director-General of the Debt Management Office (DMO), Dr Abraham Nwankwo, indicate Nigeria currently bears a domestic debt burden of N8.9 trillion while her external debt stock stands at $9.3 billion. According to him, the Federal Government’s external borrowing from multilateral institutions amounted to $3.826 billion while her loans from bilateral sources totalled $3.013 billion. On their part, state governments sourced $2.904 billion from multilateral institutions and obtained $108.9 billion as loans from bilateral sources. Even though, Dr Nwankwo sounded quite confident that Nigeria’s debt profile was still quite healthy since she has a favourable debt-to-Gross Domestic Product (GDP) ratio of 12.5% against an acceptable global ratio of 25%, there is still need for a lot of caution. This is why we agree with his position that the country will not engage in borrowing spree without caution despite the re-based economy that has enhanced Nigeria’s capacity to borrow.

We recall that in October 2005, a lot of fanfare attended Nigeria’s exit from the Paris Club of debtors. The country paid $12 billion upfront to have her external debt stock of $30 billion cancelled. In a nationwide broadcast on that occasion, President Olusegun Obasanjo attributed the indefensible external indebtedness to “political rascality, bad governance, abuse of office and power, criminal corruption, mismanagement and waste, misplaced priorities, fiscal indiscipline, weak control, monitoring and evaluation mechanisms, and a community that was openly tolerant of corruption and other underhand and extra- legal methods of primitive accumulation”. These ills have only worsened with time, creating the strong probability that our renewed growing indebtedness will have negligible impact on national development.

It is disturbing, for instance, that President Goodluck Jonathan is requesting the National Assembly’s approval to borrow $1 billion to fund the anti-terror war against Boko Haram even though N868.127 billion was allocated to defence in the 2014 budget. The reckless spending by public officers at all levels suggests that with greater prudence and less corruption, the country can progress with much less borrowing.

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