Moghalu Warns Against Borrowing Binge

The convener of the “Moghalu4Nigeria Movement (M4N)  Professor Kingsley

Moghalu has expressed concern at Nigeria’s debt exposure which stood
at $32.85 billion by March 2021.

The former Deputy Governor of the Central Bank of Nigeria (CBN) has therefore asked the Federal Government to quickly halt this borrowing binge, which is exposing the country to a possible future debt peonage considering our external debt by 2015 was $10.31 billion and in six years has doubled with the possibility that it would still go up by 2023 when President Muhammadu Buhari would have completed his two-term tenure of eight years.

According to Moghalu, this is unprecedented, unsustainable and alarming. This borrowing binge, he notes, represents a 218 percent increase. “The total outstanding public debt stock increased by 173 percent in the same period, from N12.11 trillion to N33.10 trillion.

“On the average,” he notes, “over N3.6 trillion is being added to the public debt annually. This massive borrowing, and the infrastructure investment that has been used to justify it, have grossly under-performed. “Instead of delivering economic growth, the economy has been twice in recession, and when out of it, growth has been underwhelming at 2 percent at best. And rather than the debt-funded infrastructure projects creating ample number of jobs for the citizens, the national
unemployment rate has increased to 33.1 percent while youth unemployment has reached 42.5 percent.”

Under a scenario of a coordinated economic policy by a competent government, he stresses, the debt capital outlay would have catalyzed private sector investments and sizeable foreign direct investment (FDI) flows into the economy.

The Presidential hopeful insists that public-private partnerships should be their dominant approach to infrastructure development in a country like Nigeria, instead of contract awards that, from information available from comparable projects in countries such as Ghana and Ethiopia, are at best overvalued and, at worst, grossly
inflated in their costs.

But in the real situation of the incompetence of the government in the last six years, he says, businesses have been groaning and FDI inflows have decreased. Over the past months, debt service cost has taken up more than 90 percent of government revenue.

This means that for every, one naira generated in public revenue, Moghalu argues, more than 90 kobo is used to pay the interest on government’s loans. “It is debilitating that Nigeria is spending so much money that should go to development toward merely servicing the interest on our debt, not repaying the debt. “It also makes justifications based on our debt to GDP ratio off-point.”

The former CBN Deputy Governor notes that the country is now on a dangerous, debt-induced fiscal cliff. Put simply, he continues, “the Government of Nigeria is mortgaging the future of our country’s youth.

We have to stop further borrowing and start to manage the current obligations in order to avoid a sovereign debt default or, at best, a costly restructuring. “

Further borrowing, Moghalu advises, will lead to a disastrous debt bubble bust. As alternatives to debt, he suggests, the government needs to focus on increasing domestic revenue, by expanding the tax base – not by increasing tax rates “as has been done with the value added tax (VAT) – and by introducing reforms for ease of paying taxes while abolishing multiple taxation.”

Taxation, Moghalu insists, requires the government to maintain a social contract with the people. “At the minimum,” he continues, “the government must restore security to the country so that citizens can go about their businesses, assured of their safety.”

He reminds his audience that when he ran for president in 2019, he said he would introduce a forensic audit of the budgets if elected, as part of a broader reform initiative for transparency and accountability in public finance. “This remains very important for ensuring value for money and to support public revenue growth by
restoring investor confidence in the economy,” he emphasises.

The presidential hopeful concludes that to realise a positive long-term public revenue outlook, the economy must be successfully diversified through value-added exports.