Leaders of the world’s biggest economies recently in Toronto Canada agreed on a timetable for cutting deficits and halting the growth of their debt. This was to be achieved through reduction in spending. The group also acknowledged the need to move carefully so that reductions in spending did not set back the fragile global recovery.
The precaution became necessary to pacify President Obama and US Treasury Secretary Timothy F. Geithner who advocated a measured approach to debt reduction that would not stall growth and fuel inflation. The G20 also agreed on the need to stabilize the ratio of public debt to gross domestic product by 2016.
To assuage objections from the United States, Japan, India and some other countries, the timetable was couched as an expectation, rather than a firm deadline. The G-20 joint statement explicitly stated that Japan, which is heavily dependent on domestic borrowing, was not expected to meet the targets. The debt reduction pronouncement is coming about two years after wealthy nations enacted spending programmes to counter the worldwide financial crisis, and demonstrate the belief in international financial market that deficits represented the biggest threat to economic stability.
The decision at the G20 summit is also a pointer to Nigeria that it is time to begin to watch our expenditure and consumption habit. The 2010 budget has a deficit of 5 per cent of GDP. Although at N3.95billion or 15 percent of GDP compared with 40 percent acceptable globally, the nation’s debt level is still tolerable; but there is the need for caution. We note that there is nothing wrong with deficit financing per se. Even the United States, in spite of its huge resources is the biggest debtor in the world. The difference, however, is that in the case of the US, the money is invested in productive sectors that are capable of creating employment for citizens. In our own case, such monies are often wasted, which explains why about 70 percent of the nation’s budget is recurrent while capital expenditure that drive investment and growth is not given priority. After exiting the Paris Club debt trap, a couple of years back, the nation should not grope into debt darkness anymore.
We commend the current government practice of financing deficits through the issuance of bond as against the old practice of ways and means. This has helped to moderate inflation. And it should be continued. But we recommend that budgets in Nigeria should be targeted at investment in priority areas that can stimulate growth and development. Much as foreign debts may be necessary, it should be taken at concessionary terms and money invested in projects that contribute directly to the growth of the economy.
The nation’s political system is expensive with various chains of cost centres that don’t contribute the economy. Therefore, budgets targeted at meeting political objectives should be avoided. Emphasis should be on infrastructure development, real sector growth and job creation. There should be deliberate efforts at setting targets and ensuring that implementation of budgetary allocations are strictly monitored
Furthermore, local contractors are owed N3.23 trillion and efforts should be made to clear this, preferably through debt securitisation. This is important because often government brags about maintaining manageable debt level without considering the huge local debt. We believe if this segment of the debt is properly managed, the economy will be better for it.
To put a tab on the nation’s expenditure, we submit that there should be an overhaul of our budgeting system and the nation’s resources deployed for wealth creation, growth and development. At 11 percent, inflation is a threat to Nigeria’s economic stability and frivolous expenditure must be discouraged.