•It is not only about balancing, but more about fiscal discipline
It is not for nothing that the nation’s debt profile has remained a major issue of focus in recent times. On the one hand is what is discernibly a growing appetite for debts, even at a time when oil prices have steadied; on the other is the disproportionately huge cost of debt service currently put at 50 percent of the revenue. Related to the two is the plan by the Federal Government to push the foreign debt component of public debt from the current level of 30.17 per cent to 40 per cent by December 2019, in what it claimed to be a strategy to rebalance the ratio of local to foreign debts to attain optimal debt portfolio mix of 60:40 for domestic and external debt.
For a country whose experience in the hands of the debtor cartel of London and Paris clubs could best pass for nightmarish, it isn’t entirely surprising that Nigerians have remained largely unpersuaded despite the Federal Government’s strident rationalisation of why it should borrow more, particularly at this time. Even its latest push to rebalance the foreign/local debt ratio, which seeks to address lingering concerns of debt-service costs and what government advertises as its bid to free the local debt market to enable the private sector access more funds has remained largely unconvincing.
The reasons behind this are not far-fetched. Clearly, if Nigerians have difficulty in reconciling the bourgeoning debts to the gradual but steady recovery in oil prices, that the debt surge coincides with the time when revenue agencies like the Nigerian Customs Service (NCS), and the Federal Inland Revenue Service (FIRS), continue to post superlative performances in revenue would seem to recommend a different fiscal trajectory.
That of course is debatable. Most certainly, we have no doubts about the country’s need for additional sources of finance outside the narrow confines of government revenue. Having just exited a recession, the need to maintain a high expenditure profile is such that makes the resort to borrowing ordinarily compelling. This is even more so in the atmosphere of continuing volatility and hence unpredictability of oil revenues which the country has experienced in the last three years. When the decrepit state of the country’s infrastructure is factored into the equation, the choice facing the government would appear somewhat limited indeed.
Our understanding of the matter is that the problem has never really been the quantum of loans taken per se but the lack of discipline and the general management of the proceeds. It is at the heart of why citizens, although denied value for the loans taken on their behalf, would nonetheless be subject to the crushing burden of repayment. Not only do we expect the Buhari administration to make a clean break from the past tradition but also to make a huge difference in this regard.
Much has been said about our low debt to Gross Domestic Product currently at between 20 and 25 per cent as being among the lowest in the world. Again, we must say that that itself offers cold comfort considering that Japan with 222.2 percent debt to GDP ratio, Singapore 112.9 percent, United Kingdom 89.3 percent and United States 76.5 percent are among the most developed in the world. The difference is that whereas those countries have long developed a strong infrastructural base, and hence the impressive capacity for self-renewal, Nigeria has remained a laggard in those areas.
The country’s main headache, as it appears, is the disproportionately high debt servicing to revenue ratio of more than 50 per cent – the direct consequence of low revenue generation. It is a thorny issue, no doubt. It probably explains the push by the government to increase the foreign debt component of debt. In seeking to substitute domestic loans with far higher borrowing costs with foreign loans with longer gestation and lower borrowing costs, although we must admit that both have their merits as well as drawbacks, the government appears to have reasoned that the potential future forex instability associated with foreign loans constitute a far more amenable pill to swallow at this time.
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