3 Facts About The National Debt

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National debt, or sovereign debt as it is sometimes called, consists of a country’s liabilities that require payment of principal and/or interest to a creditor at a future date. It typically comprises of currency and deposits, debt securities, loans, pensions, insurance, the IMF’s Special Drawing Rights and Standardized Guarantee Schemes. Debt is an important public policy issue the world over owing to the fact that it is an integral part of a country’s economic progress and also considering its impact on firms and households; more so it is especially important in Nigeria. In March of 2016, the Islamic Development Bank revealed that 80% of Nigeria’s revenue is spent on debt servicing.

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                80%

of Nigeria’s revenue is spent on debt servicing

 

In view of its significance, 3 need-to-know facts about Nigeria’s debt profile are examined in no particular order:

  1. Debt Component – The national debt includes all debt accrued by states and the federal government. It comprises of external debt – debt denominated in foreign currency and domestic debt – debt denominated in the Nigerian Naira. According to the Debt Management Office, as at February 2017, the country’s external debt stock was US $11.4 billion. An example of an external debt would be the US $30 billion loan the federal government intends to obtain during the period 2016 to 2018, from the World Bank and the African Development Bank amongst other international organisations. On the other hand, domestic debt comprises of treasury bills, treasury certificates, government bonds, federal government development stocks, and ways and means advances. In comparison to external debt, domestic debt is significantly higher at US $46 billion.
  1. Debt Size – The size of a country’s debt is determined by the difference between its revenue and expenditure. It is simply the net accumulated budget deficit. Currently, Nigeria’s debt is estimated to be US $57.4 billion. According to Knomena, Nigeria’s gross debt is 14.6% of its GDP. It has increased consistently from 2008, where it stood at 7.3%. In comparison to our East and South African counterparts, Ethiopia at 57.4% and South Africa at 51.7%, Nigeria’s debt as a percentage of its GDP is relatively low. Greece, which is known for its bad debt profile has its debt at 183% of its GDP.
  1. Debt Impact – Economists have not been able to conclude on the impact of debt on economic growth. In some cases, debt may have a positive impact. Factors such as efficient loan utilization, proper debt management, prompt debt servicing, and favourable trade and exchange rate policies determine the impact of the national debt on the economy.

Typically, debt used to fund public consumption, for instance, salaries and pensions is not worthwhile and presents a danger for the future generation. On the contrary, debt used for economic expansion yields returns that lead to long-term growth thereby improving the ease of debt servicing.

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4 thoughts on “3 Facts About The National Debt

  1. Useful facts.

    Despite the relatively low debt size in Nigeria, recent trends point to an unfavorable debt standing in the near future. Especially if government’s borrowing plans are actualized without a significant improvement in the downward trend of government revenue, particularly foreign revenue given that most of new debt is external.

    Like

    • Thank you Joseph.

      Very true. Hopefully, the $30 billion loan will be used to fund capital projects that have high ROI. The government needs to increase spending to stimulate the economy, private sector alone is not sufficient. The way I see it, we have to borrow!

      Liked by 1 person

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