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Avoid a new debt trap

Nigeria’s rising debt profile has become a matter of widespread concern across informed circles in the country. Last week, the country’s current estimated $60 billion debt burden featured in the Senate plenary during a debate on the N8.83 trillion 2019 Appropriation Bill. From a debt burden of $20 billion in 2015 the country’s debt has hit an all-time high of $60billion by 2019.

Opinions were however divided over how much concern we should have over the country’s current level of indebtedness. Some Senators lamented over the country’s unprecedented new debt level and raised alarm over the danger of Nigeria returning to its unenviable debt-ridden status before the 2005 debt-relief from the Paris Club of foreign creditors. Others however cited the country’s present debt to GDP ratio and allayed fears that the current level of debt will have a deleterious effect.

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Outside the Senate chambers, there is also concern in financial circles that the country’s rising debt profile could pose dangers to us in the near as well as distant future. While the debt profile has been rising annually, the country has not put its resources and finances to optimal use, especially in the oil and gas sector. It was recently revealed by the Chairman of the Revenue Mobilisation, Allocation and Fiscal Commission (RMFC), Shettima Abba-Gana that the country lost up to $60 billion (equivalent to the country’s troublesome present debt burden) in oil revenues due to the failure of successive governments to review the Production Sharing Contracts (PSCs) signed in 1993 with the oil producing companies. The more insidious aspect of his submission is that the lost money has been going into “personal pockets.” There are many other areas of waste and non-optimal utilization of resources in these and many other key economic sectors.

For many observers, perhaps the more serious reason for caution in the management of the country’s debt profile is the unsavory implications in the instance of default. Just as the saying goes that “he who goes a borrowing goes a sorrowing”, there are several cases in Africa and other parts of the world where a nation’s default in debt repayment has attracted severe measures that resulted in penalties for the debtor nation. Zambia in Africa is a typical example where recklessly procured foreign debts are now threatening the country’s sovereignty.

In the case of Nigeria, the counter-lobby to the debt alarm has cited the country’s debt to GDP ratio as a cause for assurance. According to them the country’s debt to GDP ratio is still lower that critical levels, hence there is no cause for alarm. However, this argument flies in the face of facts and logic as the country’s GDP in the last five years has not grown fast enough to sustainably facilitate a debt repayment programme that would resolve the present debt burden, either now or in the foreseeable future.

Debt repayment is only possible when current economic activities generate enough income to off-set current expenditures and leave surpluses for debt servicing. And the Nigerian economy is not recording such good news at present. The flagship economic initiative of the Buhari administration, the Economic Recovery and Growth Programme (ERGP) is yet to record any significant impact. While we are technically out of recession, the growth rate of the economy is still too painfully slow and is in fractions of one percent per quarter. Those senators and others who raised alarm about the growing debt burden are therefore right because if this debt is unserviced, we will be passing the burden to future generations of Nigerians.

In this situation, we should first of all stop the debt from growing. When state governments come up with requests to borrow from abroad, the Senate should put its foot down and grant approval only when there is a credible debt repayment programme within the lifespan of the administration that is doing the borrowing. Governments should not borrow and fritter away the money, only for future regimes and generations to be left holding the hat.

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