States and new loans
The new Director General of Debt Management Office (DMO), Patience Oniha the other day cautioned state governments against further borrowing, noting that borrowings by states were already high while revenues being received from Federal Accounts Allocation Committee (FAAC) were dwindling as a result of the subsisting economic conditions.
That caution is well sounded, if not coming even a bit belatedly. At present, quite a number of states are immersed in huge debts without visible means of repayment. Some of the borrowings remain unredeemed after maturity as a result of inadequate revenue. Indeed, this challenge of inadequate revenues is one of the major reasons most state governments have been unable to even pay the emoluments of their employees. The Federal Government, despite its own outstanding and overdue debts, has had to step in to assist the states.
It is instructive that the Debt Management Office did not just stop at cautioning against further borrowing by states, it also offered suggestions that should be of help to the states, if only they have ears that hear. States, it was said, should be strategic in the management of available public funds. They should also be creative to be able to generate funds internally for the execution of their projects and programmes. In other words, state governments should seek and exploit alternative sources of funds beside FAAC allocations.
As it is well known, there is nothing inherently bad or wrong in governments borrowing money to meet their needs. The problem, however, has always been in the ability, capacity and willingness to repay borrowed funds when they are matured. And a key factor responsible for non-redemption of due debts by governments in the country has been the decreasing trends in revenue generation. Once there is significant negative gap between loans and revenue, repayment of loans is bound to suffer. But this is a preventable problem, especially if borrowings are well thought out and subjected to sound financial management principles and practices. For instance, if the purposes of governments’ borrowings are wrong right from the beginning, the possibility of repayment will be very slim. So it will be, if the funds are misapplied or diverted into un-intended purposes. Certainly, the most critical factor that seriously weighs against repayment of borrowed funds is the shrinking or complete evaporation of revenue. In such situations, even if the debtor is willing to redeem the facility, achieving it will remain a mirage. Situations like that can easily arise in economic environments and circumstances as have been prevailing in this country for quite some time now.
However, it is incontrovertible that most of the credit facilities already taken by Nigerian governments have not yielded any benefits to the citizenry. Glaring evidences abound that governments in Nigeria have not shown acceptable proof of what they did with the money they borrowed. If there is any proof at all, it is visible in unavailability of basic infrastructure, lack of functional government institutions, utilities and other social services. Evidences are also apparent in financial recklessness, profligacy, corruption and indiscipline by those in public offices. Ultimately, what the electorate sees always is increasing level of poverty, deterioration in living standards and governments’ efforts to mortgage their future and those of upcoming generations. Governments’ borrowing without visible positive socio-economic development in the country means that the governments are jeopardising the future. Indeed, it is a form of double jeopardy when one neither has the money nor the benefits of what the money was spent on. Situations like this contribute significantly to failure of states and nations as well as families and even individuals.
In order to prevent crystallisation of a looming debt-trap, all governments (federal, state and local) need to heed the caution that has been appropriately sounded by the Debt Management Office (DMO). While the governments make efforts to repay accumulated debts, they must resist the temptation to get into new borrowings except, of course, there is assurance that intended projects to be financed will not only generate enough revenue streams to facilitate timely repayment but also yield multiple benefits to the citizens.
Towards heeding the DMO caution, governments, apart from improving their internally generated revenues, can help themselves by at least stopping all forms of financial recklessness and corruption; reordering their priorities, embarking on judicious allocation and deployment of available funds as well as imbibing personal and corporate discipline in the management of entrusted public resources.
Finally, many of the abnormalities in the governance system develop hard roots because the citizens have thrown their hands up in surrender. They keep quiet even when there is clear need to speak out. This is most common with the elite who should monitor and voice out issues before they degenerate into intractable problems. For reasons ranging from compromises and complicities to fear, they prefer to keep to themselves while the governments get away with the harm they perpetrate against the country and people. The time is up for Nigerians to stand up to check-mate actions of governments which, if allowed to take place or fester, will subject citizens to untold hardship and suffering. One such action that qualifies for check-mating is any plans by governments to borrow more money when the earlier matured borrowings are yet to be repaid, the benefits there-from are unseen and sources of repayment are still very uncertain.
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