On Nigeria’s Debt Financing Strategy for Economic Development in 2016

In the bid for economic growth and development, the present Nigerian government has turned to external debt to finance capital projects that they anticipate will trigger economic growth in all sectors of the economy, increase income and generally improve the standard of living of the populace.

However, some financial experts have expressed fears about the increase in the debt stock of the country. These reservations are of course valid for many reasons. A quick look at the Nigerian current account from 2014 shows national income falling and external debt rising both at steady rates. The cyclical deficit that is being financed by borrowing will need to be refinanced when the economy starts to see improvements and the sooner the better. With Nigeria’s history of embezzlement of income and money just somehow ceasing to exist, it is a scary prospect to know that the income upon which the progress of next few years depends is borrowed.

Nevertheless, the economy is not in as precarious a situation as it may seem. The debt stock in the country has risen more than usual over the last few months but the increase cannot be attributed to just an increase in borrowing, it is also due to the weakening of the Naira against the dollar. The structural changes that are being embarked upon should improve the exchange rate situation of the country and therefore assuage the debt situation.

In addition, the ratio of debt to GDP is still below the 5% suggested in the Fiscal Responsibility act of YEAR. If the debt is used to finance improvements in infrastructure, human capital development and exchange rate stability, the country can experience movements away from the low point of the business cycle that she is presently in towards economic growth and development.

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