The federal government has announced a debt ceiling, a upper limit on the amount of debt the three tiers of government can borrow. All debts owed by federal, state and local governments, foreign and domestic, would not exceed 45% of GDP under the new rule.
The article was exactly clear about what this means. There are 812 governments in the Federal Republic (1 federal + 36 state + 1 FCT + 774 constitutional LGAs). Are the debts of all 812, added together, meant to be less than 45% of national GDP? Or is federal debt to be less than 45% of national GDP, the states' debts to be 45% less than the respective state GSPs, and each localities debt measured individually against the respective GLP?
By the former method, we would face the political headache of distributinig "debt rights" to all 812 governments, where the total allowable adds up to 45% of the national economy; some will say they are marginalized by having fewer states or that their economies (particularly Lagos) justifies a bigger slice of the pie, or that it must all be equal, or that they are being exploited because "their oil" is funding everyone else's debt.
By the latter method, the total debt stock could actually exceed GDP because we would be multiplying 45% by 3 tiers of government, for a total allowable limit of 135%. In fact this is unlikely to be the intent of the new rule, so I will assume it is the former method.
MY THOUGHTS
As a philosophical or ideological issue, I have always been in favour of constitutional and statutory limits on the amount of debt our governments can saddle us with. As far back as the 1980s, as our initial external debt ballooned up to exceed $30 billion, even as our governments made decisions that had never been debated and approved by the citizenry (i.e. via substantively democratic elections), it angered me that we the people had to pay the price for loans we never directly or indirectly approved; loans that had clearly not achieved whatever it was they had been borrowed to do.
There should be a set of tests, procedures and strictures prescribed in the constitution before any government can borrow any loan exceeding a certain amount. Since governments will try to get around this by borrowing the same amount in smaller chunks, they should be allowed to borrow these smaller amounts free of restriction only until the cumulative borrowed in a single executive term exceeds a certain amount, at which point the restrictions should kick in.
We are not a rich country, and our national, state and local budgets are rather small compared to our needs. The poorer you are, the more you have to prioritize, and I do not think our 812 governments, past and present, have shown themselves to be good at prioritizing. Debt and debt repayments take a substantial chunk out of what are already tiny budgets. Yes, the smallness of the budgets makes borrowing inevitable, but as citizens we have a right to decide we are willing to borrow X in order to get Y, or if we can do without Y. Perhaps hear an alternate voice tell us that we could get Z, which is almost as good as Y, and only have to borrow half of X. Significantly, none of this would work unless the politician knows that choosing the option we do not want would cost him (and/or his political party) dearly at the next election. Nor will it work if we continue to have elections (or coups) that are not decided by a contest of real ideas, complete with detailed discussion (and subsequent independent analysis) of what will be done in the executive term and how those promises are going to be paid for. And there must be independent sources of quality information, so the public has a strong foundation on which to examine and decide the issues at stake.
Nigeria's debt sustainability is difficult to guage, particularly since the most important influences on our economy are all exogenous. When crude oil prices rose dramatically in the 2000s, reaching nearly $150/barrel, it powered impressive GDP growth in Nigeria. Unfortunately, the global credit crunch, slumping demand and over-supply led to a precipitous drop in oil prices by 2009. What is important to note is the decisions made in boom times could haunt is in times of bust -- which is what happened when the 1970s boom gave way to the 1980s bust, which was the root of our last debt crisis.
Without democratic checks and balances on government fiscal decisions, we the people are at the mercy of tides we don't control, without even a paddle to at least try to steer ourselves on the rapids of the global economy. When our decision-makers leave office, they do not take the debt with them; they carry on with their lives, financially enriched by their time in office, while we the citizens are stuck with paying off the debts even as we lack the funds to properly equip our hospitals.
In the absence of reform, I am almost tempted to call for a moratorium on borrowing until we systemically and institutionally reform our federal republic. In fact, the very announcement of the 45%-of-GDP debt ceiling was a loud sign of the lack of substantive constitutional limitations on decision-making.
This new rule was announced, out of the blue, by "THE PRESIDENCY". Given we are supposedly a federal republic, I would have expected such a rule to be jointly announced by all 812 governments as reflecting a unanimous decision of all 812; and if not unanimous, we could then be told how many (and who) supported and opposed. And I would also have expected a time-frame announced for proposing the rule to the National Assembly and the State Assemblies for debate and approval (or disapproval). And as a citizen, I still want to know how they intend to share the 45% shared cap among the 812 different governments.
Actually, in a federal democracy I doubt the states would agree to a shared cap until they knew what their of the cap would be. This is all the more reason for imposing constiutional and statutory restriction on HOW our governments come to the decision of borrowing money, rather than imposing a specific number as the single, shared national cap on all 812. By making the 812 sets of decision-makers justify their debt decisions to their citizenry, we can allow for 812 free and effective choices, where Yobe can decide what is right for Yobe (without ballooning debt to unsustainable proportions) while Lagos can decide what is right for Lagos (again, keeping debt in sustainable levels relative to their situation).
We need more discussion and more understanding, because right now neither the people of Yobe nor the people of Lagos could tell you where their their debt profiles are headed. I know that the federal and state governments are expected to collectively borrow $10 billion this year to cover their respective deficits .... but how much do they collectively owe as of this moment? What are the projections for the next five years, vis-a-vis budgets and debt? How are these decisions influenced by the five-year projections for the exogenous factors that influence our economy?
Are we just borrowing because we can?
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