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By: Onike Rahaman  
 Published  August 16th, 2012

As Nigeria security challenges persist unabated, the Federal Government also seems helpless in tackling the nationís rising domestic debts profile. As the debt continues to rise at unprecedented rate, and even more drastically in the recent time, the nationís image is becoming dented. It is regretted that the Federal Government had failed woefully in efforts to reduce the nationís debt profile.

Statistics obtained from the Debt Management Office indicates that the domestic debts had increased from ₦5.966 trillion ($37.71 billion) at the end of the first quarter ended March 31, 2012, to ₦6.153 trillion ($38.89 billion) at the end of the second quarter ended June 30, 2012. Indeed, the figures represent an increase of ₦187 billion or three per cent over the figure recorded in the first quarter.

Considering the economic implications of the nationís rising debt profile, it becomes a major policy issue requiring extensive public debates and discourse. More importantly, heavy indebtedness of the nation remains one of the major challenges facing most developing countries at the beginning of the 21st Century. Indeed, high levels of domestic national debt are likely to be deleterious for economic growth and development. It is also true that any economy structured and sustained by borrowing cannot achieve economic prosperity.

Detailed report of the domestic debts shows that the Federal Government bonds accounted for ₦3.71 trillion or 60.37 per cent of the money borrowed from internal sources as at June ending. The unfortunate scenario is that the impacts of the government bonds are not actually felt by average Nigerians. It would have been understandable if the bonds are effectively employed by the government to finance long-term investments. Of course, the Nigerian treasury bills accounted for ₦2.08 trillion or 33.88 per cent, while Treasury bonds accounted for ₦353 billion or 5.75 per cent.
Similarly, the domestic debt component of the total debt profile as at March 31, 2012 which stood at ₦5.966 trillion, showed that the Federal Government bonds accounted for ₦3.67 trillion or 61.44 per cent of the money borrowed through internal sources.

The Nigeria attitude to borrowing is somehow a national stigma and it calls for re-orientation of our value system. Nigerians are being misguided to believe that borrowing is inevitable and sacrosanct for economic growth. Whatever the likely benefits derivable from the huge internal borrowing, it is bound to have negative economic consequences on the citizens.
The recent acknowledgement and lamentation by President Goodluck Jonathan while presenting the 2012 budget proposal to the National Assembly that the country domestic debt have been growing at alarming rates in recent years is a further prove of the nationís economic instability. It is also worthy of note the decision of the federal government to earmark ₦560 billion for debt servicing in the 2012 budget. In my own view, debt servicing cost of public debt is likely to crowd out public investment.

We may also deduce from President Goodluck Jonathanís admission of the threats poised on the nation by the high domestic debt profile that this has called for serious national rethink. It is also interesting to note that the Minister of Finance, Dr. Ngozi Okonjo-Iweala, had expressed in an unequivocal terms, she is more worried with domestic debts than the externalís.

With the current economic realities, it is imperative that the nation should initiate a comprehensive debt servicing plan. In designing the plan, the government needs to carefully re-examine the nationís borrowing culture with its attendant consequences. Let me also state that leadership corruption remains a factor affecting the national success in the area of debt servicing. Of particular interest is diversion of funds meant for debt servicing by people at the helms of affairs.
With the current debt servicing initiative of President Goodluck Jonathan, the nation is bound to accumulate more debts in view of the fact that he gave a caveat that the nationís debt should not go beyond 30 per cent of the Gross Domestic Product (GDP). If the administration is truly serious in its desire to reduce the national debts, the set target or ceiling will still largely constitute a burden.

The caution by President Goodluck Jonathan on debt Ė GDP ratio when carefully analysed shows that at the moment the debt to GDP ratio is slightly less than 20 per cent. With latitude of 30 per cent caveat, the government may add up to 50 per cent of the current debt level. This is indeed unacceptable, considering the implications of these rates on the nationís economy.

Obviously, escalation of debt profile by the Federal Government would continue to crowd out the real sector of the economic and the equities market. Of equal importance is the fact that the capital realised from borrowing is used to finance consumption rather than investment. In a way, this government tendency is having destabilizing effect on the economy through increase in interest and inflation rates. Without missing words, by increasing those two rates, the government is battering the economy.

From policy perspectives, the negative impacts of domestic debts on economic growth strengthens the arguments for ambitious debt reduction through fiscal consolidation. Another factor that coincides with the domestic debt is the recurrent budget deficit which also causes the nation to be borrowing from Financial Institutions.
With the nationís abundant human and natural resources, the question that continues to agitate mind is the reason for our continuous borrowing both externally and internally. This unanswered question poises a lot of leadership challenges for the nation.

For significant reduction in the domestic debt to be realisable, the task should not rest solely with the presidency but there should be co-operative efforts of all the stakeholders in the nationís economy. The National Assembly equally has a vital role to play in revamping the nationís economy through debt reduction initiatives and perhaps cut pays.
Without doubts, economic sustainability is affected largely by the nationís debt profile. Our governmentís high cost of borrowing can inescapably trigger destabilisation and disenablement of commercial lending rates of over 20 per cent to the real sector. This will in effect cause higher cost of production and can as well blow up the inflationary trends.
No economy is known to have ever developed with high inflationary trends and exploitative borrowing rates. In other words, the nationís infrastructural deficits and poor living condition of people are parts of the resultant effects of persistent borrowing.

Again, high domestic debts are bound to put pressure on the government at the point of re-payment as this may cause the government to neglect some key government priorities. While introducing measures to reduce the nationís domestic debts profile, greater attention needs to be paid to viable investment initiatives. If the government can ensure huge returns for private investors, the impacts will be better felt by all and sundry instead of continuous borrowing. Irrespective of the present economic challenges, government should stop paying lip service to problem of national debt as this remains a major obstacle to national development.

Onike Rahaman,
Academic Planning Unit,
Oyo State College of Agriculture, P.M.B. 10, Igboora.

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