AHAM NZENWATA
Governments
in developing countries are faced with a myriad of challenges in their drive to
improve infrastructure and achieve economic development. Among these challenges
is the problem of how to accumulate the needed capital to fund developmental
projects and also ensuring that the capital so accumulated is “sufficient” in
order to contribute significantly to the economic growth objectives of policy
makers.
In trying to
deal with the problem of capital accumulation, the government relies
principally on revenue generated through economic activities within the
country. But this is hardly ever enough to generate the huge amount of capital
that is required to achieve the government’s development objectives. Thus, the
inability of the government to accumulate a sufficient amount of capital
through revenue generation gives rise to the need for governments to borrow.
As noted in
Ezirim (2005), when the government’s actual revenue performance falls short of
projected estimates, government resorts to borrowing to finance projects of
social and economic importance to the nation. Gbosi (1998) also noted that the
need to finance rising government expenditure was responsible for the rapid
increase in the stock of Nigeria’s public debt.
Gurley and
Shaw (1956) stated that the mounting volume of public debt is a necessary
feature of a strong and healthy financial structure in a market based economy.
But went on to caution that such borrowing should as much as possible be
planned. From the above, it can be deduced that for a development oriented
government in a market based economy, borrowing to finance budgetary shortfalls
is unavoidable.
As noted by
Onoh (2007), deficit budgeting is now a deliberate policy direction employed by
governments in developing countries. However, he also stated that countries
that resorted to borrowing especially from external sources to finance
budgetary shortfalls have recorded varying degrees of success or failure in
their use of this tool. While some recorded some measure of success in improved
production and consequently higher employment levels, others have resulted in
higher inflationary pressures, weak domestic currencies, capital flight chronic
deficit in balance of payments and negative savings.
The
implication is that borrowing by government is a policy option that should be
used with utmost care in order not to trigger adverse economic conditions that
may not have been intended in the first place. With this in mind, it is
important to note that public debt consists of two components viz – domestic
and external debt. Both involve different mechanisms and interact differently
with the economy.
Domestic
debt implies the government issuing debt instruments such as treasury bills,
treasury certificates, development stocks and bonds locally and denominated in
the local currency. By definition,
external debt refers to the portion of a country's debt that was borrowed from
foreign lenders including commercial banks, governments or international financial
institutions (Ajayi & Khan, 2000).
These loans,
including interest, must usually be paid in the currency in which the loan was
made. According to Odozi (1996), domestic debt is the gross liability of
government, and properly considered should include Federal, State and Local
governments transfer obligations to the citizens and corporate firms within the
country.
On the other
hand, external debt arises as a result of the government sourcing funds outside
the shores of the country. According to Rais and Anwar (2012), while external
borrowing increases the country’s access to new financial resources, domestic
borrowing only transfers resources within the country. In other words, domestic
borrowing only change hands of money holders while the volume of money within
the country remains the same.
Nigeria like
many other developing countries has over the years relied heavily on borrowing
to finance huge capital intensive projects. A cursory look at the structure of
Nigeria’s debt structure both domestic and external indicates a gradual
increase in public debt from 1981 to 1998.
In 1999
total debt spiked upwards to N3.37 trillion from the previous year’s 1.19
trillion representing about a 182% increase. It is also instructive to note
that external borrowing is largely responsible for this upward spike,
increasing from 1998’s N688 billion to N2.57 trillion in 1999.
Nigeria’s
total public debt peaked in 2004 at N6.26 trillion before dropping to N3.18
trillion in 2006. Nigeria’s public debt data published by the CBN also
indicated that domestic debt constituted a whopping 82% of the total public
debt. But by 2004, domestic share of the total debt had dropped to about 21.89%
and rose again to about 86.84% of the total by 2010.
Available
data from the Debt Management Office (DMO) shows that Nigeria’s total debt
stock (addition of external and domestic debts) as at December 31, 2011 stood
at N6,510bn representing an increase of 24.37% from the December 31, 2010
figure of N5,235bn. A breakdown of the debt stock shows that external debt
accounted for 13.64% of the total debt stock at N887.95bn, while domestic debt
stock accounted for 86.36% of the total debt stock at N5, 623bn.
The total
public debt stock in the country as at December 2011 is estimated at about
17.50% of the GDP, as against the applicable critical limit of 40% for
countries in Nigeria’s economic peer group (FSDH, 2012). It is important to
note at this point that the Debt Management Office has set a target of not
exceeding a GDP to Debt ratio of 30%.
Data on
fixed capital formation as published in the CBN Statistical Bulletin (2012)
showed that from inception gross fixed capital formation has been on an upward
trend except for a few intermittent years when it had shown a reduction from
the previous year. For example in 1981, Nigeria’s expenditure in provision of
fixed capital was N18.2 billion.
This value
dropped consistently through the next few years until it reached its lowest
value at N8.79 billion in 1985. It rose to N11.35 billion in 1986, N15.22
billion in 1986 and N17.56 billion in 1987. The upward trend continued until it
peaked in 2010 at N4.012 trillion before dropping to N3.357 trillion in 2012.
In the next
section, we will explore the structure of Nigeria's public borrowing using
graphs, charts and tables.
The data
presented in this section are those relating to the characteristics and trends
of the data involved in this study. The information generated in this section
gives a clear indication of the trends and characteristics in the Gross Fixed
Capital Formation, Domestic and External Debt in Nigeria for the period of the
study (1981-2012).
TABLE 4.1: Gross Fixed Capital Formation,
Domestic Debt, External Debt and Total Debt of Nigeria (1981-2012)
|
Period
|
Gfcf (N' M)
|
Domestic Debt (N' M)
|
External Debt (N' M)
|
Total Long-Term Debt (N' M)
|
|
1981
|
18,220.59
|
3,353.00
|
2,331.20
|
5,684.20
|
|
1982
|
17,145.82
|
3,559.00
|
8,819.40
|
12,378.40
|
|
1983
|
13,335.33
|
3,855.00
|
10,028.80
|
13,883.80
|
|
1984
|
9,149.76
|
3,789.00
|
13,653.60
|
17,442.60
|
|
1985
|
8,799.48
|
4,327.00
|
16,026.70
|
20,353.70
|
|
1986
|
11,351.46
|
4,818.00
|
37,299.80
|
42,117.80
|
|
1987
|
15,228.58
|
4,921.00
|
80,154.40
|
85,075.40
|
|
1988
|
17,562.21
|
4,773.00
|
108,214.20
|
112,987.20
|
|
1989
|
26,825.51
|
15,987.00
|
205,326.10
|
221,313.10
|
|
1990
|
40,121.31
|
24,411.50
|
257,663.90
|
282,075.40
|
|
1991
|
45,190.23
|
24,231.00
|
284,891.90
|
309,122.90
|
|
1992
|
70,809.16
|
22,978.50
|
480,124.10
|
503,102.60
|
|
1993
|
96,915.51
|
120,883.40
|
563,478.70
|
684,362.10
|
|
1994
|
105,575.49
|
199,327.10
|
578,743.90
|
778,071.00
|
|
1995
|
141,920.24
|
177,246.39
|
647,609.60
|
824,855.99
|
|
1996
|
204,047.61
|
240,362.60
|
570,240.00
|
810,602.60
|
|
1997
|
242,899.79
|
137,243.60
|
560,456.00
|
697,699.60
|
|
1998
|
242,256.26
|
182,317.10
|
597,865.40
|
780,182.50
|
|
1999
|
231,661.69
|
433,066.20
|
2,440,850.60
|
2,873,916.80
|
|
2000
|
331,056.73
|
432,737.20
|
2,938,897.90
|
3,371,635.10
|
|
2001
|
372,135.65
|
432,458.20
|
3,031,544.80
|
3,464,003.00
|
|
2002
|
499,681.53
|
432,259.20
|
3,786,543.70
|
4,218,802.90
|
|
2003
|
865,876.46
|
504,630.00
|
4,354,334.70
|
4,858,964.70
|
|
2004
|
863,072.62
|
498,748.20
|
4,783,711.20
|
5,282,459.40
|
|
2005
|
804,400.82
|
671,078.20
|
2,609,545.50
|
3,280,623.70
|
|
2006
|
1,546,525.65
|
1,058,258.20
|
386,629.10
|
1,444,887.30
|
|
2007
|
1,936,958.21
|
1,594,708.20
|
431,079.85
|
2,025,788.05
|
|
2008
|
2,053,005.95
|
1,848,377.73
|
523,254.09
|
2,371,631.82
|
|
2009
|
3,050,575.92
|
2,367,516.57
|
590,437.13
|
2,957,953.70
|
|
2010
|
4,012,918.65
|
3,274,720.00
|
689,837.49
|
3,964,557.49
|
|
2011
|
3,908,280.32
|
3,894,930.00
|
896,849.62
|
4,791,779.62
|
|
2012
|
3,357,397.77
|
4,414,609.35
|
1,026,903.92
|
5,441,513.27
|
SOURCE: CENTRAL BANK OF NIGERIA
STATISTICAL BULLETIN, 2012 EDITION
FIGURE 4.1: Gross Fixed
Capital Formation (GFCF) Trend for the Period of the Study (1981-2012)
Figure 4.1 above shows the trend in
Gross Fixed Capital Formation (GFCF) for the period 1981 to 2012. The figure
shows that in 1981, Nigeria’s expenditure in provision of fixed capital was
N18.2 billion. This value dropped consistently through the next few years until
it reached its lowest value at N8.79 billion in 1985. It rose to N11.35 billion
in 1986, N15.22 billion in 1986 and N17.56 billion in 1987. The upward trend
continued until it peaked in 2010 at N4.012 trillion before dropping to N3.357
trillion in 2012. See Table 4.1 above.
FIGURE 4.2: Total Long-Term
Debt for the Period of the Study (1981-2012)
Total Long-Term Debt rose at a
slower gradient in the earlier years. From its initial value of N5.68 billion
in 1981, it rose steadily to N824.86 billion in 1995, it dropped to N697.70
billion in 1999 before spiking upward to N3371.64 billion in 2000. Total
long-term debt attained its highest value in 2004 at N5282.46 billion before
dropping to N2371.63 billion in 2008. Currently (2012), it has a value of
N5441.51 billion.
FIGURE 4.3: Nigeria’s
Long-Term Domestic and External Debt Trend for the Period of the Study
(1981-2012)
Figure 4.3 show trends in Nigeria’s
Long-Term External and Domestic Debt for the period of the study. It shows that
external debt maintained a much higher value than Domestic Debt from 1981 to
2004. Following the debt repayment agreement between the Federal Government and
the London and Paris Club of Creditor in 2004, External Debt Dropped from its
record high of N4783.71 billion in 2004 to N431.08 billion in 2007. Before
resuming an upward trend again in 2008 but at a much gentler gradient than in
previous years. In 2012, the value
stood at 1026.90 billion. The figure also show that for the first time in 2006,
Total Domestic Debt Assumed a higher value at N1058.26 billion against External debt’s N386.63 billion. To
date, domestic debt has continued to be higher than external debt.
FIGURE 4.4: Nigeria’s Total
Debt to GDP Ratio for the Period (1981-2010)
Figure 4.4 above show Nigeria’s
Total Public Debt to GDP ratio from 1981 to 2010. It shows that Nigeria’s total
debt to GDP ratio rose from about 28% in 1981 and consistently grew to about
142% in 1991. Of the 1991 value, external debt accounted for about 105% of the
total. From 1992 until 1996, the total debt to GDP ratio assumed a downward
trend dropping to 38% in 1996 before spiking upwards to 106% in 1999. Since
then, total debt to GDP ratio has continued to drop. Presently (2010), it
stands at 18% of GDP. The figure above also indicate that
FIGURE 4.5: Nigeria’s
External Debt to GDP Ratio for the Period of the Study (1980-2010)
Figure 4.5 above shows that the
trend in External Debt to GDP ratio for the period of the study almost mirrors
the trend in Total Debt to GDP. This is probably because external debt is the
dominant component of Nigeria’s public debt. For example, of the total of 130%,
133%, 143%, 142% and 136% Total Debt to GDP ratio in 1988, 1989, 1990, 1991 and
1992 respectively, External Debt accounted for 96%, 111%, 112% and 105% and
102%.
FIGURE 4.6: Structure of
Nigeria’s Public Debt From 1997-2012
Figure 4.6 shows the structure of
Nigeria’s Long-Term Public debt from 1997 to 2012. It shows that in 1997,
Nigeria’s Total Long-Term Debt comprised of about 80% External Debt and 20%
domestic debt. This value rose to about 85% in 1999, it maintained values in
the 85% to 91% range from 1999 to 2004. In 2006, it fell to 27% and fell even
lower to about 17% in 2010.
For comments, observation or other feedback or if you need assistance with your research projects/papers, you can contact the author via E-mail: researchmidas@gmail.com or call/Whatsapp (+234)0803-544-6622
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