History is replete with countries that plunged into crises on the strength of ever- rising spending and the crushing effect of accumulated debts. For instance, Greece fell into deep economic morass due to its fiscal policies. It kept spending while borrowing continue to make a quick upward trajectory. Then, it began to creak under the weight of debts with serious consequences.
J.H Cullum Clark, rightly pointed that high spending on politically favoured priorities and rising debt have consistently undermined growth through three standard mechanisms- crowding out private sector investment, crowding out public sector investment in long-term priorities and sparking financial crises as investors come to doubt the governments creditworthiness.
However, it’s instructive to state that debt or borrowing as a means for mobilising capital isn’t a crime or altogether an anathema. Its prudent application is all that matters! And, i think Thomas Jefferson had Nigeria in mind, albeit he came to office with huge debt staring at him; when he stated that “the principle of spending money to be paid by posterity under the name of funding, is swindling futurity on a large-scale.”
Nigeria economy has continued to go south just as a huge mountain of debt menacingly stand before it. Concern is now rife as the momentum for borrowing remain strong. In effect, many are worried of a Greek style economic implosion at best or a Zimbabwean style implosion at worst as the recourse to uncurbed borrowing appears to be government sole option in keeping the country from crises. At any rate it is a well paved path to perdition. And, it is proving to be an albatross around the country’s neck on the strength of the huge appetite and the purpose to which some of the loans are applied.
The government has acted in defiance to the Fiscal Responsibility Act, in effect with impunity. A case in point is the exceeding of the borrowing threshold. The country said never again to the incurring of unsustainable debt no sooner than it wriggled out of the grip of suffocating debt in 2006 which was sought to free a lot of resources to drive the economic programme of the government of the day. However, debts have continued to proliferate like stubborn weeds since the Paris club debt relief.
As at March 2021, the nation’s debt stood at 33.1 trillion naira according to the Debt Management Office (DMO) with many pundits talking of a much higher figure. The World Bank in 2010 revealed through a published study that a 77percent debt- to- GDP ratio was the tipping point for developing economies and 64percent for emerging market. So, the managers of our economy have continued to make so much song and dance of our debt- to -GDP ratio described as moderate at about 35 percent forgetting the frightening state of our debt- to -revenue ratio.
Our obligation to servicing the loans seem to be lost on those who place premium on political considerations in approving more loans. The 2021 budget implementation report revealed spending of 1.8 trillion naira in debt servicing in First five months of the year representing about 98 percent of total revenue recorded in the same period. Instructively, between January and May 2021 the total revenue was 1.84 trillion.
Already, we have spent about 13.465 trillion naira between 2016 and 2021 in servicing our loan. Now, about 14.6 trillion is expected to be expended for same purpose for three years having been approbated by the National Assembly under the 2022-2024 medium term expenditure framework of the government.
This means that staggering resources will be unavailable to tackling major challenges like poverty, unemployment, infrastructural deficit etc. Remember we having been borrowing to settle salaries, overhead and capital expenditure. Truth is, we can’t keep borrowing in anticipation of another debt forgiveness.
We need to wake up from this reverie and act fast. We need to sink politics and say it the way it is, that our borrowings are unsustainable. The cost of these borrowings far outweighs the benefit of the loans. It is not only about the growing debt burden; the external reserve has considerably dipped.
Ostensibly, the vulnerabilities of the economy to external shook which is known to us underpins the accretion of these debts. Oil revenue makes up about 60 percent of our total revenue and 90 percent of source of foreign exchange. We are now haunted by our reluctance to curb profligacy, cut the size and cost of governance, diversify and improve on revenue generation and plug leakages.
Ungbo writes via