Last week, I started discussing about the very disturbing issue of Nigeria’s rising debt profile. You can find the discourse here. This week we will be advancing the discussions further. Starting out with the justification (or otherwise) for being a debtor-nation.

Justification and Counter-Justification for Taking Loans

Nigeria is 6.2 billion dollars in debt externally while internal (domestic) debts are a sky-high 6.3 trillion naira. Whether Nigerians have seen the effects of this borrowed billions in their daily lives is an issue for another day. But we may truly want to ask ourselves one question and that is that must Nigeria borrow or must state governments borrow? It seems to be that the global economic system in the world today encourages some level of borrowing- after all that was why an internationally accepted level of debt to GDP ratio of 40 per cent was set in the first. That means country are advised to borrow but not beyond 40 per cent of their GDP. Strikingly, Nigeria has one of the lowest debt to GDP ratio (of 18.65) in the world today. Below countries like China, The UK, the US, Germany, South Africa, etc.[1] I saw one stat recently that showed that China is about $1 trillion dollars in debt, while the US is over $16.4 trillion in debt. this goes to show that even countries that are at the forefront of development, actively borrow. Nigeria being a member of the international community has followed this trend.
Flowing from above, some of the reasons government usually give for borrowing include: budget deficit financing, implementing monetary policies,[2] domestic borrowing can be used for developing instruments so as to deepen the financial market e.g. bonds. On the issue of financing budget deficit, simple economics tells us that living on deficits is definitely not a proper model for prudent financial management. The 2012 federal budget had a deficit of N 1.1 trillion. It is fallacious to think that one would be justified to borrow because he continually operates a deficit budget. It is a fallacy the government should stop presenting to Nigerians as reality.
As for implementing monetary policies, definitely there are other viable ways of implementing monetary policies such as increasing of reducing interest rates and bank reserves. Once again it is a case of a fallacious bias for taking loans rather than seeking other options. It is not total reality. The government has displayed a clear knag for taking the borrowing option. Again if it is for the aim of implementing monetary policy, we know that the Government agency responsible for that is the Central Bank of Nigeria (CBN). But interesting, the CBN Governor, Lamido Sanusi has recently severely criticised, the Federal and State Governments borrowing culture. These are the words of Sanusi; “we are borrowing more money today at a higher rate and leaving the burden for our children and grandchildren. For example, if you receive salary and every day the money is not enough, you have two options to adjust yourself. Either check your expenditure or check your wages.”[3] This more than anything else shows that the CBN and the Ministry of Finance are not in cahoots over Nigeria’s debt profile and management. So, the CBN could not possibly be using government’s borrowing as a strategy to implement monetary policies.
The Minister of Finance, Dr Okonjo-Iweala recently went to the National Assembly to seek it’s approval for an increment of the country’s Medium Term borrowing plan from $7.9 billion dollars to $9.3 billion dollars. As part justification for this new borrowing spree she pointed that these news loans were obtained on highly concessionary terms and had longer repayment periods with little or no interest. This was possible by the fact that these loans were not obtained from the Paris Club  of creditors nor the London Club. Rather, they were obtained from the financial institutions such the African Development Bank (ADB). Again one wonders whether because there is a window to take loans on concessionary terms should be a stimulus to go on a borrow spree. Of course we are not unmindful of the fact that there could actually be a genuine need to borrow assist the country’s development drive. No one can truly fault that where it is the best way out. But our fear is that the Nigerian government have always shown the knag to take the option of borrow as if that was the only option and that he has led to Nigeria’s debt profile rising in the past to unprecedented levels and it is threatening to do so now.
Another issue that comes to mind quickly is whether Nigerians have seen the effects of these several billions of dollars that have flooded into this country as loans and aids. We cannot deal fully with that issue here as that borders more on economics than legal reality. But a stroll down most of the streets of the cities in Nigeria will quickly show the realities on ground. For example, one of the reasons for taking the latest batch of loans according to the Minister of Finance is to aid the FG in creating jobs. But a look at “official” figures of unemployment for the past four  years show that it has been on the rise despite previous billions of dollars of loans that have been taken over the years. In 2009, unemployment was at 19.7 per cent, 2010 21.1 per cent, 2011 23.9 per cent and 2012 about 25 per cent. The facts speak for themselves (Res Ipsa Locutor).
We do not think that the Federal and State Governments in Nigeria are justified in borrowing the way they currently doing. We think that other avenue of funding government plans and projects should be actively explored so that borrowing will only become the last option not the first.
Another angle that we may now want to look at, what can the law do about this? Or what are the legal implications of this issue? Or what are the legal obligations of government in debt management? These are areas we shall be exploring next week in our discourse.
See you next week!

[2] Monetary policies are the actions of the Central Bank that determine the size and the growth rate of the money supply.
[3] You see The Nigerian Tribune, 27 December 2012.

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Nigerian Law Today

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