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Home Opinions Blurb

Kemi Adeosun reveals the reasons behind massive government borrowing

Onome Ohwovoriole by Onome Ohwovoriole
October 16, 2017
in Blurb, Business News
CBN Gov Godiwn Emefiele

Dr. Godwin Emefiele & Mrs Kemi Adeosun

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Finance Minister, Kemi Adeosun at a press conference held during the recent World Bank/International Monetary Fund (IMF) annual meetings held in Washington, stated that the government had to embark on massive borrowing, to prevent downsizing the civil service.

We felt that laying-off thousands of persons was not the best way to stimulate growth. Also, when we came into office, about 27 states could not pay salary. If we had allowed that situation to persist, we would have been in depression by now. So, we took the view as a government  that the best thing to do was to stimulate growth and spend our way out of trouble, get the state governments to pay salaries, making  sure that the federal government pays and invests in capital infrastructure,”

 

 

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Kicking the bucket down the road

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The current administration, like many others is avoiding the necessary hard choices the country has to make. A greater proportion of government revenues in the country, go towards recurrent expenditure ( salaries and wages). Nigeria’s current debt service to revenue ratio at over 60% are  unsustainable, for a developing country. Rather than downsize or make the civil service more effective, government has choosen the easier option of borrowing.

Implications of the massive borrowing

Government borrowing has crowded out the private sector from lending, as banks make more money from the interest on debt securities, than give out loans. Nigeria has been able to raise Eurobonds because foreign investors have the confidence that the government will repay such funds from crude oil revenue. In the event of another oil shock, the country would be caught off guard. Hopes of any hard reforms happening soon are dim as the election cycle approaches.

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State governments will be left worse off, because most of them are heavily dependent on FAAC allocations. Bailout funds from the federal government have been mismanaged in some states.

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