Economists and financial analysts argue that all is not cheerio as the little gains made in external reserve portfolio are cancelled out by a rising debt profile.
By Chukwudi OHIRI
One of the most gladdening news about Nigeria?s economic growth in the month of October was that Nigeria?s external reserves continued to maintain its upward trend, apparently as a result of the rise in prices of crude oil in the international market. Nigeria?s external reserves appreciated by three per cent to $42.566 billion at the end of the month signaling a healthy growth. Gladdening as the report might seem, analyst have continued to worry over the equally rising debt profile of the country which, if not abated, will plunge the country back into debt crisis.
The recent projection by the Debt Management Office (DMO) that Federal Government?s debt profile will reach a new height of $25.2bn between 2012 and 2015 has continued to generate apprehensions and sometimes, confusion over the actual health status of the economy. At an interactive session with the House of Representatives? Joint Committee on Finance, Legislative Budget and Research, National Planning and Aid, Loans and Debt, the Director-General of DMO, Dr Abraham Nwankwo disclosed that the projected debt consists of domestic and foreign borrowings, calling for application of caution in governments borrowing.
According to Nwankwo, the projected domestic debt between this year and 2015 is estimated as follows: $6.48bn in 2012, $7.125bn in 2013, $7.792bn in 2014 and $8.444bn in 2015. The $25.2bn 3-year projected public debt is besides the existing $45 billon public debt with $39bn as domestic debt. Altogether, it means that the nation?s total public debt profile may rise to unprecedented mark of over $70bn by 2015. This could be unsustainable if not properly managed and is a good cause for worry. Of this debt statistics, domestic debt constitutes over 80 percent of the total debt or 18 percent of the Gross Domestic Product (GDP). Economists argue that such a figure is most harmful to the economy as it can ultimately lead to devaluation of the national currency, budget deficits and other social discontent.
Although analysts believe that the projected debt between now and 2015 is still lower than the 40 percent ceiling recommended by international financial institutions, they worry that Nigerian leaders lack the prerequisite financial prudence to channel and manage the borrowed funds to productive ventures that can pay off such debts within the period of moratorium. When this happens as it is customary with Nigerian leaders, the tendency is for the country to recede to its former debt status before the Paris club intervention sometime in 2005. Pundits are of the view that government?s borrowings within the last four years (2007?2011) is not in tandem with the recorded economic development suggesting that some funds are finding their way into wrong places or projects, a situation that may boomerang in the near future.
Speaking to Nigerian OrientNews, Mr. Friday Usoro, a financial analyst said: ?There is nothing wrong with borrowing in itself. There is no country that does not borrow to finance their projects including the United States. But unlike these states, Nigerians have not yet learnt financial prudence and as long as corruption remains endemic in our system, we must apply severe caution lest we go back to the debt burden era of the past?. He further explained that judicious management of loans has remained the albatross of our economic system. ?Loans become advantageous to the people when such loans are used for specific value-adding projects capable of generating adequate returns that can repay both the principal and the interest where applicable?, he said. Concluding, he added that ?it is most unfortunate that the country is yet to learn fiscal discipline and financial prudence and so must exercise a lot of restraints while borrowing?.
Apparently irked by this disturbing trend, Nigeria?s upper legislative body, the Senate equally raised an alarm recently over the rising local and foreign debts profile of the country which, in their own estimation was put at over US$39.72 billion. Speaking at the inauguration of the Senate Committee on Local and Foreign Debts in Abuja, the chairman of the committee, Ehigie Edobor Uzamere, clearly stated that Nigeria?s debt profile had risen to US$39.72 billion (about N6.02 trillion) with external debt element put at US$5.398 billion while domestic debt was N5.21 trillion representing a significant leap on the US$3.62 billion presented by the Debt Management Office, DMO as the country?s external debt stock as at March 2009.
He called on the federal government to focus more on borrowing for projects with self-repaying capacity and job generation rather than borrowing to finance gaps in budgets that are largely recurrent. Uzamere also revealed that the debt profile was ?more than the Federal Government?s yearly budget as its external component translates to 2.76 percent of our Gross Domestic Product, GDP, and its domestic component translates to 17.53 percent of the GDP. He promised that his committee ?will align its energy with the Executive to review the country?s debt policy and thereto, redefine its debt strategy? recommending reliance on Public Private Partnership (PPP) through adequate legal framework as the most viable alternative to borrowing.
While relishing the rising external reserve, it is? pertinent to note that a high debt profile is more cancerous than a huge external reserve and in fact make mockery of the GDP of any nation.
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Source: http://www.nigerianorientnews.com/?p=2358
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