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Clear domestic debts first

Minister of Finance, Hajiya Zainab Ahmed
Minister of Finance, Hajiya Zaynab Ahmed.

Nigeria’s domestic public debt has been put at N3.4 trillion out of the country’s total public debt stock of N21 trillion. Minister of Finance Mrs. Zainab Ahmed disclosed this at the Federal Executive Council meeting last week while making a submission on how the country will settle its inherited indebtedness to both local and foreign creditors.

The Finance Minister said seven transaction partners had been appointed for the execution of a Promissory Note Program aimed at settling the administration’s inherited local debts and other contractual obligations at a fee of N698 million. The seven transaction partners are KPMG Professional Services Ltd, Zenith Bank Plc and Zenith Capital, Coronation and Access Bank Plc UBA and United Capital (Financial Advisers), Summons Cooper Partners, Damian Dodo and Partners as well as Perchstone and Graeys.

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There were mixed reactions to the growing portion of the country’s growing debt stock. Some experts think the ratio of Nigeria’s pubic debt when compared to the country’s GDP falls within safe parameters. Other experts contend that like many developing countries, Nigeria’s efforts with respect to debt management usually marginalizes local or domestic creditors and places more emphasis on the foreign component. This is because foreign creditors have greater capacity to exercise leverage on the country in order to swing debt management options in their favour. Domestic creditors are less endowed in this respect.

Meanwhile in spite of the seemingly small ratio of domestic debt to the national debt stock, its impact on the economy when there is default in servicing, is more significant than is often realized. Needless to state that default remains the common feature of such domestic debts. There are at least three ways through which domestic debts in default impact deleteriously on the economy. One, they tie up productive private sector capital in non-productive public sector ends. Secondly, they slow down the rate of economic growth. Thirdly, they diminish the flow of incentives for businesses and can even induce government to seek money by raising taxes. Government hence plays the role of the dog in the manger which will neither eat the grass (domestic creditors’ funds in its custody) nor release same for the public to use.

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Usually governments find it easy to incur debts, even as repayment of same depends on either inability or unwillingness to do so. In the case of Nigeria, most domestic debts are incurred and even allowed to fester for long periods of time due to a combination of both inability and unwillingness to service same. The net effect of such a situation is the endemic wallow of the economy in stagnation, since available resources are restricted from deployment in viable productive ventures.

The situation therefore calls for a new, robust disposition by the government towards debt management in the country especially the domestic component. Expecting Nigeria’s economy to grow without effective resolution of the burden of non-serviced and defaulting domestic debts is tantamount to building castles in the air. Something cannot stand on nothing. If anything, the slow pace of the government’s flagship economic initiative, the Economic Growth and Recovery Program (ERGP), is a graphic metaphor.

A breakdown of the country’s domestic public debts owed by the various federal, state and even local governments reveals the creditors as   commercial banks, government contractors, subscribers to government securities such as treasury bills and others. Meanwhile many of such debts were incurred often by public officials with clearly dubious intentions for deploying them as avenues for syphoning public funds.

This dour situation is closely associated with the inchoate public procurement regime in the country in respect of which a law even exists. Government’s response to this situation should therefore be robust and entail a review of the public procurement protocol at all tiers of governance. Meanwhile, domestic creditors to government should enjoy priority attention in the spirit of charity beginning at home.

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