By Moshood Karim Olawale
I am not a fan of huge government borrowing, but when such loan or facility is taken for critical infrastructural provision, it should be deployed in such a way that would be beneficial to the economy.
A recent report has it that the Federal Government of Nigeria has planned a 12 trillion fresh borrowing for reason best known to her. This piece, therefore, looks at the effect of government debt on Nigeria’s economic growth viz-a-via Nigeria’s developmental agenda.
Public debt as we know is an important tool for government to fund public spending, particularly when it is difficult to raise and reduce public expenditure. But in recent times, this process has left most government in Africa especially Nigeria with massive outstanding debts.
Unarguably, taking loans to finance public infrastructural development is a key to foster economic growth, but excessive borrowing as in the case of Nigeria without appropriate planning for investment may lead to heavy debt burden and interest payment which in the longrun might create several undesirable effects for the economy.
Also, the financial cost of debt servicing can increase beyond the capacity of the economy to cope with, taking into cognizant the recent rise in exchange rate of the dollar to the naira, the negative effect of debt servicing to Nigeria’s economy is over bearing as it takes a huge toll on her revenue.
The rising of both public and domestic debt of Nigeria will definitely hinders the country’s ability to pursue productive investment in education, health and other areas of endeavours that requires urgent human needs.
Recent statistics show that Nigeria is ranked among sub-Sahara African countries heavily indebted with a stunted GDP growth rate, low export growth rate, a fast dwindling income per capital and the poverty capital of the world. Aside corruption, Nigeria’s economic growth has been restricted by huge debt which often times unable to service due to low revenue and unproductive economy.
It is worthy of note that successive government in Nigeria has been accumulating debt at an alarming rate while debt servicing cost has increased astronomically which has become a serious burden with population explosion.
The reality in Nigeria today is that we have an economy that is over bloated with government debt and debt servicing cost which is taking a toll on revenue. What this translate into is that there would be less money to support private investment for unsustainable development. This can be seen for instance when Nigerian government spent #1.76trillion in 2020 as against a budget of #1.87trillion in servicing domestic debt while expending #805.47billion to service foreign debt the same year.
When a significant part of government revenue is use in servicing debt, little is left for critical infrastructural development. The Rising debt profile and its attendant increase in poverty level among Nigerians is a serious concern. It is, therefore necessary for government to pursue a debt reduction policy to enhance economic growth.
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