“The more things change, the more they stay the same”. Thus, Jean-Baptiste Alphonse Karr, commenting several years ago on the infinite capacity of our species to generate motion that leads nowhere. In the Nigerian case, as with just everything about this country, there is the very important difference that the more things change, the more they worsen. Everything about the Debt Management Office’s ( DMO) recent disclosure on the end-June 2012 status of the nation’s debt stock speaks straight to this tendency. According to the DMO, Nigeria’s debt closed the six month period that ended June 2012 at N7.093 trillion. 13.27% (or N941.2 billion) of this was owed to non-resident creditors, while the rest (N6.152 trillion is due to domestic creditors).
Understandably, there is a context to the discussion of Nigeria’s national debt that invites us to interrogate Dr. Ngozi Okonjo-Iweala’s (the Coordinating Minister for the Economy) role in the build-up of this new burden. After all, she it was, who (in the vanguard of a federal government team, and) in the teeth of remonstrance from a large number of our nationals went ahead in October 2005 to agree (with representatives of the Paris Club of creditor countries) a “comprehensive treatment” of the nation’s debt. Basically, the agreement, according to a press release issued then by the Paris Club allowed “Nigeria to obtain a debt cancellation estimated at US$18 billion (including moratorium interest) representing an overall cancellation of about 60% of its debt to the Paris Club of around US$30 billion”.
There is no point rehashing the pros and cons of that debate. Suffice to remember that we were assured then that free from the debt-service burden, we could deploy our scarce resources more usefully. That has not happened, as a few Nigerians dared to point out 7 years ago. Instead, the First National Implementation Plan for Vision 20:2020 estimates that we will now need to spend at least N32 trillion over a four-year period to plug the huge gaps in the country’s infrastructure needs. Not only therefore, did we part with a prince’s ransom 7 years ago, but we have since wasted the gains from that effort, and the gone ahead to rack up a new mountain. As a result of which, next year, we intend to utilise 12% of the central government’s total expenditure on servicing debt, i.e. 38% of what we mean to spend on maintaining and/or building new infrastructure.
Does it then matter that the DMO reassures us that at 18.32%, our current total debt/GDP ratio is “far below the 40% threshold approved for countries” in our category? Because I imagine that countries in our category are so focused on bringing the fruits of modernisation and development to their people and are therefore investing in the capacity to build things themselves. These countries are consuming resources and inviting investment to improve the supply dynamics of their domestic economies. Nigeria just does not qualify, therefore, for inclusion in this category. In part, the disconnects in our economy are to blame for this. But these disconnects are not so much because (as it has often been argued) we are beyond the pale of economic laws. They are instead the consequence of government’s heavy and incompetent interventions in the market.
This downside is why we could not have done better with the US$18.5 billion paid out to the Paris Club as part of the October 2005 settlement. It is the reason why we have amassed so much debt from recurrent spending alone. And it, accordingly, recommends a lower debt/GDP ratio for us. Over the near-term, the central government’s immediate need is to find ways of financing the debt-service cost. Over the medium-term, its only task is to grow the economy. What type of fiscal policy adjustment conduces to both these goals? As each day passes, I am persuaded that only a near-death experience will drive us down the path where government and the public sector become half as effective as is necessary to make this a “normal” country. Consequently, the traditional argument that taxes must go up – whether on labour, capital, and or consumption – as part of the requisite fiscal adjustment might just fail.
The net effect, any which way of this policy direction (as indicated by the new tariff on rice and wheat import) is a drop in domestic demand and a reduction in output. We have already seen the increased demand for savings associated with government’s new debt levels drive up the cost of money. On one hand, high interest rates drive up borrowing costs curtailing private sector activity. More crucially, however, combined with the new levels of fiscal consolidation needed to manage higher levels of public sector debt, elevated borrowing costs, according to the IMF “reduce the incentive to work, invest, and consume”.