Former President Olusegun Obasanjo has warned President Muhammadu Buhari against accumulating debts for recurrent expenditure.
Despite public outcry against rising debt and its lack of impact on economic growth, President Buhari wrote to the National Assembly last week, seeking approval to obtain fresh external loans of $4.054 billion and £710 million in an addendum to the 2018- 2020 borrowing plan.
The request was in a letter read by senate president Ahmed Lawan on the floor of the upper legislative chamber.
In the letter, Buhari explained that owing to“emerging needs”, there is a need to raise funds for some “critical project”, while seeking the parliament’s nod to also approve grant components of $125 million.
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In July, the National Assembly approved the sums of $8.3 billion and £490 million loans contained in the initial 2018-2020 borrowing plan.
Speaking to channels TV on the sidelines of events in South Africa, Obansanjo said if existing debt was left unserviced or unpaid, it might become a problem for successive administrations.
While noting that borrowing is not a problem, Obansanjo said that what could be the problem would be what one is borrowing for and plan or capacity to pay back.
Nigeria’s budget is structured that recurrent expenditure gulps 70 percent while capital projects take up the remaining 30 percent.
According to Obansanjo, borrowing for recurrent expenditure is the “height of folly”.
“If you want to build a commercial house and you go and borrow money, and you have 50 percent of your own money, and you borrow 50 percent and in five years, you pay the 50 percent that you borrowed. That is a wise thing to do,” he said.
“But if you have to go and borrow money for you to be able to feed yourself and your family, that is a stupid thing to do.
“So, if we are borrowing for recurrent expenditure, it is the height of folly. If we are borrowing for development that can pay for itself, that is understandable. Then the payment, how long will it take to pay itself? “But we are borrowing and accumulating debt for the next generation and the next generation after them, it is criminal, to put it mildly. What are we borrowing for?”
He recalled that during his tenure in 1999, the country was spending $3.5 billion to service debts that kept on increasing.
“When I came into government as elected president, we were spending $3.5 billion to service debts. Even with that, our quantum of debts was not going down,” he added.
The Debt Management Office (DMO) said Nigeria’s total public debt climbed to N35.46 trillion at the end of the second quarter (Q2) of 2021.
