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