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Moghalu Warns Government Against a Borrowing Binge

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The convener of “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 the 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.

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