“The opportunity cost of high debt service commitment for the economy and citizens is very high, as the economy is denied funding for critical'' GovernmentBudgetBalance CrowdingOut FiscalPolicy GovernmentDebt Debts Nigeria
The recent Senate’s approval of President Muhammadu Buhari’s $5.513 billion loan request bumped the country’s external debt profile to $33.18 billion, representing 91.4 per cent of the country’s foreign reserves of $36.31 billion at the close of transactions at the weekend.
Their argument stems from the fact that Nigeria’s external debt level of $27.68 billion, as at 2019, is about 75 per cent of external reserves, the highest since 2005. Without an uptick in crude oil prices and sales, reserves may fall below $30 billion, reducing the cover to external debt to below 100 per cent. Reserves are currently at $36.31 billion.
Reacting, the Lagos Chamber of Commerce and Industry stated that the country’s capacity to service the current stock of debt raises serious sustainability concerns. “All these concerns underscore the imperative of reforms to reduce recurrent expenditure, especially the cost of governance. It is critical also to ensure appropriate policy choices to attract equity domestic and foreign private sector capital for economic and social infrastructure financing.”
“The continuous non-creative practice of borrowing to finance recurrent expenditures does not portray managers of the economy in good light as this is setting the nation on a long-term economic chaos. Quite unfortunately, with all the borrowings from successive governments, there seems to be insignificant impact on national life, as there is still widespread unemployment, uninspiring educational system, high poverty levels, poor infrastructure and poor health system, among others.
But Minister of Information and Culture Lai Mohammed in a statement disagreed that Nigeria’s debt-to-GDP ratio is one of the lowest in the world. He assured that government was making concerted efforts to increase revenue to bring down the ratio of debt service-to-revenue. According to him, while the Federal Government plans to spend N10.52 trillion this year, and targets N5.6 trillion in revenue, it has never collected this much even when oil prices were higher.
“Except the country gets a relief from creditors, debt service could take up over 90 per cent of government’s revenue in 2020, according to the IMF, leaving no fiscal room for intervention in job-elastic sectors. An economist, Johnson Chukwu, said to manage Nigeria’s increasing national debt burden, particularly debt servicing, which is now at over 90 per cent of government revenue in Q1 2020, government must adopt a multi-prong approach.
“Again, government needs to prune its current over-bloated cost of governance, which is exerting demand on financial resources. It is heart-warming that the President, in his Democracy Day broadcast, made reference to his directive for the rationalisation of overlapping ministries, departments and agencies of the Federal Government.Chukwu also stressed the need for a more effective tax system, which will increase government’s revenue without necessarily increasing the tax burden on taxpayers.
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