In recent years, Nigeria has suffered a series of economic woes, including inflation, recession, fluctuating crude oil prices, and an expanding population. These challenges have, however, raised concerns about the federal government’s handling of its finances, especially debt management.
Nigerians have become increasingly worried about the country’s growing net debt in the last ten years. To an average Nigerian, more debt liability means socio-economic backwardness. For Instance, as of Q,2 2023, the country’s debt profile stood at about $113.42 billion, equivalent to about N87.38 trillion.
Daily, many ask and wonder why Africa’s most populous country continues to borrow money instead of printing new naira notes to fund government expenditure – capital and recurrent.
For instance, an X user, Osasioma, wrote, “Today, all we hear about is Printing new Naira notes and borrowing here and there. Our oil and other revenues are on autopilot for debt servicing.
Similarly, another X user, Seun, wondered why the country would continue to borrow money when the CBN could print new Naira notes. He said, “Why do Nigeria keep borrowing money from other countries when we can easily print any amount we need in CBN?”
These concerns open a Pandora’s box of economic intricacies. To properly understand this puzzle, there is a pressing need to delve into the main reasons propelling the nation’s avoidance of the supposedly simple solution of printing money.
Inflation control
One of the most basic reasons Nigeria borrows against printing new notes is to avoid inflation – hyperinflation. More money in circulation would depreciate the value of the naira and inflate prices of commodities. Memories of mid-1996, when inflation depleted the savings and purchasing power of Nigeria and Nigerians, are still vivid. The exception is when more money in circulation coincides with increased production of goods and services. The more naira in the hands of Nigerians waiting to be spent on personal and family needs, as the case may be, the higher the prices of goods and services. But through borrowing, the government can control the volume of money in circulation, helping stabilise prices and prevent inflation.
Foreign exchange reserves
Over the years, Nigeria has relied on imports and services consistently. For instance, the country exports crude oil and imports refined petrol for local consumption. On the contrary, printing more currencies would devalue the naira notes, limiting the country’s capacity to pay for imported goods. The naira would be weaker against the dollar, as it is now, and other currencies used in international transactions. Unavoidably, this will create a situation whereby Nigeria would import critical goods and services on debt. Borrowing money ensures the country has enough foreign exchange reserves to pay for its imports and avoid a balance of payments crisis.
Reducing debt burden
Printing new notes devalues the naira, making debt repayment more expensive. It implies that the country would be paying more money to settle its debt because of the exchange rates. Imagine how much Nigeria would spend on debt servicing, for instance, N4,000 to a dollar. This will increase Nigeria’s debt burden because more naira would be committed to repaying a negligible amount of debt. The irony remains that the debt keeps expanding because interest rates multiply over time. However, by borrowing money, the government can effectively handle its debt, potentially cutting the overall burden on generations.
Raising investors confidence
Foreign and domestic investors are likelier to invest in a country with considerable fiscal skills and responsibility to maintain a stable economy. Nigeria’s debt profile points to the fact that the country is committed to maintaining a stable economy and managing its financial obligations responsibly, which can attract Foreign Direct Investments into the country to catapult economic growth. Creditors, local and international, and investors cast a wary look on nations that resort to excessive currency printing. Therefore, debt convinces investors willing to commit their resources to the economy that the country would be able to properly handle their investments and be able to make gains and returns.
Funding capital projects
Borrowing is a window that allows Nigeria to meet its development needs, including building infrastructure, improving healthcare and education, and mechanising agriculture. For example, the Federal Government dualised the famous Kano-Maiduguri expressway through the Sukuk bond. These investments can help stimulate economic growth and improve the quality of life for its citizens, making borrowing a strategic choice for long-term development. By tapping into international markets, Nigeria can secure funds at relatively favourable interest rates, spreading the burden of debt repayment over time.
Conformity to international standards
Collecting debt ensures rigorous oversight and adherence to international fiscal and lending norms. By engaging with multilateral institutions and private creditors, Nigeria is more liable to imbibe discipline in its spending habits and resist the temptation to embezzle resources for corrupt and credulous reasons. This will also ensure that the country remains relevant in the community of nations through diplomacy and agreements.
Diplomacy and collaboration
Borrowing can fastrack partnerships and collaborations between Nigeria and other foreign governments and institutions transferring technical expertise, knowledge, and capacity development through mutually beneficial treaties. As such, Nigeria is better placed to harness global resources to solve critical national development issues and unlock new growth opportunities. This, therefore, justifies the notion that no nation could afford to be an island. We need the resources and expertise of other people to grow and develop as a nation and people.
Nigeria’s decision to borrow rather than print money reflects a deep understanding of the complex interplay between fiscal policy, economic stability, and global dynamics. While printing currencies may offer a seemingly quick fix to economic constraints, the long-term ramifications could become damaging to the economy. By exercising prudence and foresight, Nigeria charts a course toward sustainable development and prosperity for its citizens, navigating the treacherous waters of international finance with caution and resolve.
The researcher produced this fact-check per the DUBAWA 2024 Kwame KariKari Fellowship, in partnership with WikkiTimes, to facilitate the ethos of “truth” in journalism and enhance media literacy in the country.
