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Unless Nigeria
checks her domestic debt, which has been rising disproportionately to
external debt, the private sector may be crowded out of the debt
market. The World Bank recently sounded the alarm on the country’s
domestic debt, warning that it may stifle private sector growth.

Greenwich Trust
Limited, a diversified financial services firm, in its weekly report,
said the scenario could have a negative effect on the nation’s economy.

“The World Bank has
cautioned the Federal Government to check its rising domestic debt,
which has continued to accumulate compared to its external debts.
According to the World Bank, the rising domestic debt, which currently
stands at $21.8 billion (N3 trillion), may have a negative effect on
the economy, as the private sector may be crowded out,” the report from
the finance firm stated.

The finance firm
noted that the president has also requested for an approval from the
House of Representatives to borrow about $5 billion from foreign
sources to finance critical infrastructure projects, as part of the
external borrowing plan earlier approved by the National Assembly.

Managing the debt

In August, the Debt
Management Office (DMO) stated that it has pegged its borrowings next
year to $7.1 billion, in a bid to control public borrowing and keep
Nigeria’s debt within sustainable threshold.

In its latest
report on the national Debt Sustainability Analysis (DSA), the debt
office stated that the Net Present Value (NPV) of the country’s debt,
currently at 16.2 percent of gross domestic product, would crash to
about 2.2 percent by 2020 and 0.9 percent by 2029, if effective debt
management practices are put in place.

Abraham Nwankwo,
director general of DMO, said with this forecast, total public debt is
expected to grow from $31.4 billion presently to about $38.5 billion
next year, to be sourced from both domestic and external institutions
in a 60:40 proportion respectively, in line with last year’s DSA,
adding that the nation’s debt is sustainable.

Barely three years
after it exited the Paris and London Club debts, the Central Bank of
Nigeria (CBN) on Monday said Nigeria’s debt profile has risen to N3.4
trillion, with N551 billion owed external creditors. The second quarter
report released by the CBN in Abuja said the country’s total debt now
stood at N3.4 trillion, about 14.8 percent of the GDP.

The DMO said the
external debt was mostly owed multilateral institutions, with some of
the facilities having a 40-year repayment period and less than one
percent interest rate.

Judicious use of funds

Some finance
experts, however, said Nigeria, contrary to general opinion, is in fact
a highly under borrowed economy, and needs to venture into constructive
borrowing for the right reasons.

“If we had a
purposeful government that actually wants to address infrastructural
displacement, then they must borrow,” Ayo Teriba, managing director,
Economic Associate, said.

According to him,
the nation, at the moment, is not borrowing to invest. “We are
borrowing to pay pension allowances, to get voters register and the
likes. It shows the lack of vision on the part of the nation’s
leadership,” he added.

Sunday Salako, a
member of the National Economic Management Team (NEMT), said the
challenge for Nigeria is not if its presently over or under borrowed,
but if the funds are actually being appropriately utilised.

“The question is
how are these funds being utilised? You can borrow money if there are
issues you have that need to be addressed with the borrowed funds, but
not in a situation where there is nothing tangible that is ready to be
addressed,” he said.

In 2006, Nigeria
reached a deal with the Paris Club of creditors, which allowed for the
payment of $12.4 billion in order for the entire debt of over $30
billion to be cancelled. Nigeria’s debt profile rose to about $32
billion, owing largely to penalties and late interest payment fees over
the years.