The resort to borrowing by the country to finance virtually everything has become worrisome to many analysts, with the state governments increasing their exposure to the foreign and domestic debt markets at will, EVEREST AMAEFULE writes
The 36 states of the federation and the Federal Capital Territory increased their domestic debts by N1.64tn in the past three years, available data have shown.
According to statistics obtained from the Debt Management Office, the subnational governments raised their domestic borrowings from N1.71tn as of December 2014 to N3.35tn as of December 2017.
This shows that the subnational governments ramped up their domestic indebtedness by N1.64tn within a period of three years ending December 31, 2017. This shows an increase of 95.9 per cent in the local debts within the three-year period.
Within the same period, the domestic debt of the Federal Government rose from N7.9tn to N12.59tn. This means that within the timeframe, the domestic debt of the Federal Government rose by N4.69tn.
This means that the domestic debt owed by the Federal Government rose in the three-year period by 59.37 per cent.
Although the domestic debt of the Federal Government exceeds that of the subnational governments put together, the states grew their domestic debts by a higher percentage of 95.9 per cent compared to the 59.37 per cent for the central government.
The resort by the various tiers of government across the country to the debt market, experts argued, has had some negative impacts on the economy.
One of such impacts is the rise in interest rates. As a result of increasing rate of borrowing, the country has been spending much on servicing the domestic debts.
In the first nine months of 2017, for instance, the Federal Government spent a total of N1.24tn on domestic debt servicing.
Apart from the sheer increase in the cost of borrowing, another effect of the government’s increased presence in the domestic debt market is the crowding out of the private sector from the market.
The logic is simple: Those with resources are more comfortable lending to the government and its agencies than lending to the private sector, because the possibility of default is higher in the private sector.
The increasing involvement of the state governments in the domestic debt market has also raised concern in some circles. The Social Development Integrated Centre, a coalition of civil society organisations, for instance, has raised the alarm over the states’ increasing debts.
The Head, National Advocacy of the group, Vivian Bellonwu-Okafor, recently asked the National Assembly to come up with a legislation that would stipulate stringent conditions for states to borrow money.
According to the group, it is unpalatable for some states to be paying as much as N500m for debt servicing on a monthly basis.
Bellonwu-Okafor stated, “State-level debts have become a considerable source of worry to well-meaning Nigerians. As it is well-known today, many states in the country are insolvent and are barely surviving on monthly allocations from the Federation Accounts Allocation Committee.
“Worse off are infrastructural conditions, including public service delivery in these states. This is worrisome for while the process of contracting these loans have been poor and non-transparent, the management has been worse.”
The President, African Development Bank, Dr. Akinwumi Adesina, a former agriculture minister in Nigeria, said the quality of the management of debt was more important than the size of the debt.
He stated, “Now, the domestic debt is so high. In the case of Nigeria, the bulk of the debt is domestic debt at very high interest rates, which is where the challenge is. Nigeria’s debt to Gross Domestic Product ratio is not high for a country the size of Nigeria. That is not where the challenge is. It is that the state governments and the Federal Government over time have accumulated so much domestic debts and, trying to service them has been a real challenge.
“The most important thing is the quality of public expenditure and what has been invested in and what the revenue profile that allows you to implement that.
“That applies to whether it is Nigeria or any other country. That is what we have to keep our eyes on: making sure that you have sustainable debt situation through good public financial management.”
Beyond debt, however, some experts are calling for other forms of raising money to finance projects and development across the country.
The Director-General, Bureau of Pubic Enterprises, Mr. Alex Okoh, thinks that selling some assets may be healthier than borrowing, while his counterpart at the Fiscal Responsibility Commission, Mr. Victor Muruako, is of the view that harnessing internal sources and making government agencies efficient will release resources to the government.
Adesina, on the other hand, called for the deployment of pension funds and the Sovereign Wealth Fund in financing development projects.
He said, “What sense does it make if I take my SWF and I am investing it outside? I am making money on the fund but I don’t have power; I don’t have roads or rails; I don’t have anything. How can you compete? You can never compete. The places you are putting the money have those things. So, it makes absolute great sense to invest the SWF in assets.
“There should be regulatory conditions that say you must invest ‘X’ per cent of your portfolio in infrastructure in Africa. That is why I fully believe that the SWF can play a big role.”
So, rather than the SWFs investing outside where they are earning real negative returns, they should be invested within, Adesina added.