Stakeholders in the economy have expressed worry over the capacity of the country to service its rising debt profile.
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In an interview with our correspondent, the Director-General, Lagos Chamber of Commerce and Industry, Dr Muda Yusuf, said the growing national debt was a cause for concern.
The debt profile grew by 127 per cent from N12.6tn in 2015 to N28.6tn as of the end of March 2020.
Yusuf said although 14.3 per cent of the debts were debts owed by the state governments and the Federal Capital Territory, there was cause for worry.
He said, “The capacity to service the current stock of debt raises serious sustainability concerns.
“For instance, the debt service provision in the 2019 budget was a whooping N2tn whereas the total capital budget was N2.9tn. This implies that the debt service commitment was 70 per cent of capital budget allocation.
“Only recently, the National Assembly approved the revised 2020 budget of N10.8tn.
“The recurrent component was N4.9tn, which is 45.4 per cent. The capital component was N2.49tn, which is 23 per cent of the budget.”
“Th
e debt service component is N2.95tn, which is 27.3 per cent.
“It follows that the sum of the recurrent provision and the debt service provision represent 73 per cent of the budget.
“It also implies that the debt service is 118 per cent of the capital budget provision.
“This percentage would be higher if we reckon with actual figures at the close of the budget year.”
With the plunge in revenue, he said, the capacity to fund both the recurrent and debt service would be severely constrained.
This would put capital project funding at a great risk, he noted.
According to him, the opportunity costs of high debt service commitment for the economy and citizens were very high as the economy was denied desired funding for critical infrastructure projects which were needed to build a globally competitive economy.
There was also the exchange rate risks inherent in the exposure to mounting foreign debt which we need to worry about, he said.
He said as the currency depreciated, the burden of servicing foreign debt would intensify, especially when productivity in the economy remains low.
This, he said, was a major problem with increasing the stock of foreign debt.
“All these underline the imperative of reforms to reduce recurrent expenditure, especially the cost of governance,” he said.
The director-general said it was critical as well to ensure appropriate policy choices to attract equity domestic and foreign private sector capital for economic and social infrastructure financing.
A former President, Association of National Accountants of Nigeria, Dr Sam Nzekwe, worried that about a quarter of the country’s budget was being used to service debts.
He said, “Borrowing is not bad in the real sense of it, but what have you done with the money?
“Have you borrowed for recurrent expenditure or to finance capital project? If they are borrowing to finance recurrent expenditure, it is bad.”
He said it was cogent for the government to prioritise that it was borrowing for.
