Sanusi cautions FG against rising debt profile

Posted by admin CBN (Central Bank of Nigeria), Latest Politics Wednesday, December 26th, 2012

The Governor of Central Bank of Nigeria, Mallam Lamido Sanusi, on Tuesday raised the alarm over the nation’s rising debt profile and warned that the development, if left unchecked, would result into hardship for Nigerians.

Sanusi, at the the Honorary International Investment Council conference in London, argued that if the existing level of borrowing from big nations continued huge debt profile would place “undue burden on posterity.”

The country’s total external debt stood at $6.2bn as of September 30, while the domestic debt profile was N6.3tn.

A statement from the apex bank on Tuesday quoted the CBN governor as saying, “We are borrowing more money today at a higher interest rate while leaving the heavy debt burden for our children and grandchildren.

“For example, if you receive your salary and every day the money is not enough, you have two options to adjust yourself; either check your expenditure or check your wages.”

He advised the Federal Government not to allow the present and unborn generations inherit the heavy burden of foreign debts since Nigeria is currently in great danger because of it.

But the CBN governor’s position on the country’s rising debt profile sharply contradicts that of the Finance Minister, Dr. Ngozi Okonjo-Iweala.

Okonjo-Iweala had defended the borrowing plan when she appeared before the House of Representatives Committee on aid, loans and debts management.

She allayed the fears that Nigeria was returning to the old era of amassing huge external debts, just a few years after she exited from the grip of the Paris Club.

According to her, the country’s debt to Gross Domestic Product ratio would remain at a sustainable level of about 18.87 per cent, even with the new loans.

She explained that the loans were not only necessary for the Nigerian economy to grow but had been negotiated with multilateral institutions on highly concessionary terms.

The minister said that having been involved in Nigeria’s struggle to exit the Paris Club at great pains in 2005, it would be unthinkable for her to lead an Economic Management Team that would drag Nigeria back to that unfortunate economic era when Nigeria groaned under the debt burden.

The Senate had two weeks ago warned state governors against creating debt burden for future generations.

It urged them to stop what it described as excessive borrowing.

While presenting the 2012 budget proposal to the National Assembly, President Goodluck Jonathan had lamented that the domestic debt had been growing at an alarming rate in recent years. The clearest evidence of this is that in 2012, the Federal Government budgeted 560bn for debt servicing.

The President spoke of curtailing domestic debt, but he also gave room for the government to accumulate more debts by saying that they should not go beyond 30 per cent of GDP.

At the moment, the debt to GDP ratio is slightly less than 20 per cent. With a latitude of 30 per cent debt to GDP ratio, the government could add up to 50 per cent of the current debt level.

The National Assembly, last week, approved a $7.3bn borrowing plan for federal and state governments.

The HIIC conference looked into the best ways of attracting investment to Nigeria and agreed that the nation with many opportunities and natural resources stood to grow faster economically.

All the speakers agreed that Nigeria, with many opportunities and natural resources, stood to grow faster economically, if the current trend of economic progress was sustained.

In one year of the administration of President Jonathan, Nigeria’s debt profile has risen by N1.21tn.

Statistics obtained from the Debt Management Office show that the country’s debt profile rose from $36.45bn (about N5.68tn) in March 2011 to $44.28bn (N6.88tn) as of March 2012.

The domestic debt component stood at $38.37bn (or N5.97tn), while the external debt stood at $5.91bn (or N919.44bn).

Details of the external debt balance show that multilateral financial institutions account for 83.28 per cent of the country’s foreign debt.

The International Bank for Reconstruction and Development, a member of the World Bank Group, accounts for $6.31m, while another member of the group, the International Development Association, accounts for $4.29bn.

The International Fund for Agricultural Development, also a World Bank group member, contributes $70.25m to the nation’s external debt balance.

-Punchwp_posts