By Kabiru Isa Dandago, PhD
As for the reasons why those in government embark on borrowing on behalf of the public, five justifications and one wicked reason could be identified in the case of Nigeria: (i) insufficient funds from the traditional sources (IGR, Foreign Reserves, sales of natural resource like Petroleum, etc) to execute developmental projects; (ii) the need to catch up with technological and other knowledge-based infrastructural development projects in developed economies which need huge capital investment; (iii) the need to benefit from the funds available with the international financial institutions to which Nigeria is a member; (iv) the need to make good use of the “idle funds” available in the various funds mobilized by relevant institutions/agencies in the country (like banks, insurance firms, health insurance funds, Pension Fund Administrators, etc); (v) the need to use available funds for servicing existing debts so as to please the creditors to agree to grant further loans; and (vi) the corruption in some of the government functionaries that borrow on behalf of the masses.
Since the authorities at the federal, state, and local government levels have failed in adopting available measures for generating funds locally to be used for executing short-term, medium-term, and long-term developmental projects and they are not ready to cut off unnecessary expenditure on public governance, the country would be at standstill if money is not borrowed domestically and externally. It is noted from the report of Presidential Economic Advisory Council, and even in the 2019 reports of the FIRS, that tax to GDP ratio is around 7%, while sister African countries like South Africa and Ghana are claiming 29% and 20%, respectively. With low tax to GDP ratio and the poor performance of the other internal sources of revenue available to the government at all the three-tiers, recurrent expenditure coverage (especial payment of salaries), using Internally Generated Revenue (IGR), is becoming difficult in the country. If recurrent expenditure could not be reasonably covered, using IGR, it is clear that the other two major expenditure sources (Capital projects and debt servicing) could not be contemplated at all if borrowing is disallowed/avoided! What a justification for continuous and deeper falling into the debt trap!
As the world is moving towards the direction of knowledge economy to which all countries must follow suit, a lot of additional expenditure must be incurred for them to catch up with the technological and other knowledge-based infrastructural development projects. As the IGR is incapacitated to cover even the traditional recurrent and capital expenditure, governments in Nigeria (FG, SGs and LGCs) must resort to borrowing for them to have the funds needed to cover the huge capital investment needed in getting into the knowledge-based economy. It is unfortunate that the federal government is still having the mentality of returning to the agrarian economy for employment and revenue generation! But since the reality is that the world has passed that stage of economic development, and even the industrial economy and ICT economy stages, every nation must struggle to be part of where the world is (Knowledge Economy) for it to be relevant in the ‘Global Village’! If a country does not have the fund to catch up, borrowing might be a necessity to its leaders.
Since Nigeria is a member of the World Bank, International Monetary Fund (IMF), African Development Baank (AfDB), etc, the country would want to benefit from the funds available with those international financial institutions, since the funds are for the use of member countries, mainly with deficit in their developmental plans. The interventions of these financial institutions come in the form of loans, grants, or aids, to which each member country is entitled to. So, even where a country is buoyant, it might borrow from the funds with a view to executing some extraordinary developmental projects.
Pensions Funds, health insurance funds, life and non-life insurance firms, and depositors’ money kept at banks for security purpose are idle funds if not immediately invested for the purpose of growing up the wealth of the owners and lubricating the economic system through generous investment. Government might seek to make good use of those “idle funds” through the issuance of Treasury Bills and other short tern financial market instruments to borrow up money from those funds. Government also enjoys many services, including construction of buildings or machines and equipment by contractors, on credit, thereby building up much domestic credits.
Creditors, especially bilateral and multilateral ones, who accept ability to service debt as an excuse for a borrower to seek for more loans, would demand prompt payment of interest annually and payment of the principal amount on maturity date as a precondition for extending more loans in the future. If a government fails to pay, it cannot even have the gut to approach the creditors for more loans or for forgiveness on the long outstanding debts that the government couldn’t settle. So, borrowing government would prefer to use tax revenue and other internally generated revenues to service debts so as to please the creditors for further credits, and then borrow from any available sources to execute some developmental projects.
A wicked reason is the corruption that is alleged to be motivating some top government functionaries to resort to borrowing, even if there is no glaring need for the loan. As money is borrowed, especially not for executing self-liquidating projects, corrupt government functionaries make sure that they siphon a big proportion of the amount received into their personal accounts. Sometimes, it is alleged that some officials take more of the amount than what is used in executing the non-core project on which the money is borrowed! As this type of loans dominate the indebtedness of a country/state, how could any serious development happen in that country/state? How could there be peace, tranquility, harmony, trust, respect, and loyalty?
Solutions to Public Debt Problems
The problems leading to high indebtedness are not without Solutions, it is all about sincerity of purpose and commitment to the agenda of enhancing the welfare of the citizens and the attainment of sustainable economic development in debtor nations, like Nigeria. Key solutions to the problem of indebtedness which could, in reasonable time, get indebted nations, like Nigeria, out of the public debt trap, are highlighted below.
First, the debtor nation should make effort to utilize all sources of revenue generation, especially tax revenue, God has endowed the nation with. In the case of Nigeria, a lot of sources of revenue are there to be utilized but it is apparent that the utilization is too low. As mentioned earlier, the tax authority (FIRS) has once reported that the tax to GDP ratio of Nigeria was just about 7%, while South Africa was having about 29% and Ghana about 20%. The country has the capacity to raise the ratio higher to the region of 30%, which would mean high tax revenue accruing to the purse of the government. Doing this demands adoption of stringent measures for blocking leakages in the tax revenue collection system, increasing the percentage of high-net-worth individuals (especially property owners) in the tax net, and assisting micro, small and medium scale enterprises to grow to higher level for them to enhance their profitability and acquire the capacity to pay tax to government.
Governments at all levels are also to ensure that the resources God endowed the country within the areas of agriculture, solid mineral, manufacturing, and human capital are effectively used to attain high production level of agricultural and manufactured goods and services that could satisfy domestic demand and any excess exported to make foreign exchange earnings. In the process, employment would be greatly generated for Nigerians and high profit would be made out of which income tax and other taxes could be generated and collected by the government. All these demand doggedness, trustworthiness, and selflessness from those holding positions of authority.
Secondly, the government at all levels must reduce current expenditure items: especially cutting off unnecessary personnel benefits; ghost workers to be fished out and removed completely from the payroll; administrative luxury to be reduced and other wastages in public governance to be cut off. Capital expenditure budgetary allocations too should be reasonable or economical, avoiding all the “paddings” in capital projects budgets/estimates. When measures like these are taken a lot of savings could be made which might free some big amount of money that is hitherto being wastefully expended, leaving serious developmental projects without internally generated revenue to finance them. Borrowing would therefore be unnecessary!
Thirdly, government should work hard towards ensuring that there is high level of private sector investment (Domestic and foreign) in the various sectors of the economy. Investors are to be attracted into many aspects/sectors of economy so that government could be relieved from some responsibilities that private investors could take care of as part of their business ventures. For examples, private investors could be contractually engaged by government to go into highway roads and bridges construction. Their investment could be arranged to be recouped through tollgates fees collection over an agreed period of time. This would fast-tract the construction of high-quality highway roads and bridges across the country and the tollgates fees payable by motorists could be fixed reasonably for the investors to recoup their investment and make reasonable profit. In the process, employment would be generated, security on the roads would be enhanced, accidents would be minimized, travel times would be reduced, etc.
Government could also allow private investors to provide tape borne water, electricity, and other services at reasonable charges, with government providing reasonable subsidy. Government should concentrate its revenue on provision of internal and external security, high quality education and healthcare delivery, entrepreneurial training, good judicial system, and other services (public goods) that are better provided by government. With this arrangement, corruption would be greatly dealt with, and public debt could be avoided or substantially minimized.
Fourthly, emphasis on educational reform at all levels (primary school to university) should be on entrepreneurship, that is learning for self-employment. Pupils/students are to be exposed to practical aspects of whatever they are learning in the class and the trained should be creative, initiative, and self-reliant. With the resources that could be freed from the emphasis on projects which private investors could execute and commercialize and the corruption in the whole process could be dealt with, through the measure discussed above, government is bound to have enough funds that could be used in providing the needed equipment, facilities, and other infrastructure to be used in giving high quality practical/entrepreneurial education at all levels. This would accelerate the process of attaining sustainable development of the country, without being indebted to anybody.
Conclusion
This paper strongly believes that Nigeria has already fallen into the public debt trap, and the country is getting deeper into the trap through the government’s medium term borrowing plans over the years. The country has also reached or exceeded the IMF/WB threshold of public debt not exceeding 55% of GDP. The biggest damage the indebtedness made to the country is the worsening of its corruption situation, as government functionaries appear to be greatly benefitting a lot from the amount being borrowed, especially as many of the projects meant to be financed through such borrowing are ending up as abandoned projects. The public debt trap problem is not without solutions, and four (4) of such solutions have been recommended for implementation by appropriate authorities in the country. It is hoped that if the recommended measures are sincerely adopted, Nigeria and, by extension other debtor developing countries, would get out of the public debt trap in not distance time.
Professor Kabiru Isa Dandago, PhD, FCA, FCTI, FNIM, FNAA, FFAR, MNES, AQIF is a Professor of Accounting @BUK, Professor of Taxation @PAAUA. He can be reached via kidandago@gmail.com, +2348023360386
