The country’s debt stock increased by 33 per cent from the previous year and domestic debt continues to account for a larger percentage of the government’s borrowing as it accounted for 8.6 trillion naira and the external debt accounted for 1.3 trillion naira.
“It is really worrisome because there are a number of issues when you talk about debt analysis, sustainability and of course [when you talk also] about the usage of the funds. There is always this temptation to look only at debt sustainability to make a case for growing your debt portfolio,” Dr Abiodun Adedipe, Economist & CEO of Adedipe & Associates told CNBC Africa.
According to the medium term expenditure framework, the country is meant to be seeing gradual reduction in domestic borrowing, however, this has not been the case.
“Ordinarily, an economist will not see any problem with you borrowing but the main question would be, what do you borrow for? And then we now talk about your debt capacity, which is your capacity to service the loan and to also repay it over the agreed period of time with the creditor,” he explained.
The Medium Term Expenditure Framework optimal ratio of domestic to external debt is 60%:40 % but Nigeria is currently at 86 %: 14 % with South West and Northern states the most heavily indebted. A further breakdown of the figures released by the Debt Management office showed that Lagos, Kaduna and Cross River topped the list.
“If you look at it from 2007 particularly, on annual basis, our domestic debt was growing and the question now is, what have we been spending the money on? When you look at the other side which is the fiscal operations of the government, you’ll discover that a lot of our spending has been on recurrent expenditure,” he said.
Nonetheless, the Federal government argues that there is nothing to worry about as our debt to GDP ratio is still low and the country is still within the recommended ratio threshold.
“When you look at the threshold itself, there are actually four different dimensions to the interpretation of that. It is not so much about the threshold itself, it is about what are the components of it,” he added.
As Nigeria has improved her credit rating in the international markets, experts recommend that the federal government takes advantage of the low interest rates and increase external debt. On the other hand, bonds worth 180 billion naira have been issued and many believe that this figure will climb as revenue fails to meet budgeted figures.