Nigeria’s debt profile is already quite high, although in terms of the Debt to GDP ratio; it is still among the lowest in the world. The Association is of the view that if the government must continue to borrow, it must be for investments and capital projects (infrastructural development) and not for consumption (paying salaries). The recent Domestic and Foreign Debt figures released by the National Bureau of Statistics indicate an increase in the nation’s foreign debt by about $3.6 billion between December 2016 and June, 2017.
This is a cause for concern as the corresponding improvement in the nation’s infrastructural deficit cannot be confirmed; power, roads, rail, water and other infrastructure which businesses require to thrive and contribute to the nation's economic growth are still inadequate or in poor state. The issue of debt sustainability is also a source of serious apprehension as the nation’s ability to service our increasing debt is currently hinged on revenue from crude oil which has plummeted from over $100 per barrel in mid 2014 to around $50 today. If the borrowed funds are not applied to required investments, the nation will continue to face a heavy debt burden with limited ability to repay.
Whenever government borrows (internally or externally); it is in direct competition for financing with other borrowers especially private firms seeking to raise funds for investments from financial markets thereby "crowding them out". Since funds are not available in unlimited amounts, the more government borrows, the less the funds available for private companies. The Association cautions that this crowding out effect creates a demand pressure which drives up cost of funds in the form of high interest rates which in turn discourage investments and economic growth.
The Association counsels government to implement policies to lower interest rates, improve infrastructure, and encourage private sector activity, as this will improve the country's GDP, reduce the dependence on crude oil and improve the ability to pay back especially with sustained improvement in Internally Generated Revenue.
IYALODE ALABA LAWSON. MFR, FIoD, JP.
National President, NACCIMA.
20th September, 2017.