DEBATE: SHOULD BORROWING LIMITS BE SET FOR STATE DOMESTIC DEBTS?

- July 18, 2018

SHOULD BORROWING LIMITS BE SET FOR STATE DOMESTIC DEBTS?

By: Dinzei Maureen

State Domestic Debt refers to the contractual obligation of owing or accumulated borrowing by the state government with a promise to pay back at a future date. Borrowing on the order hand is the act of lending money to fund a project so as to better the lives of individuals in a state.

The nation’s rising domestic debts presently is at a high rate and this has remained a cause for concern. This, according to Prof. Chris Onalo, Registrar/Chief Executive Officer, Nigerian Institute of Credit Administration (ICA), needs to be addressed for the economy to grow, therefore, borrowing limits should be set for state domestic debts so as to retrieve the ill-gotten wealth and some elephant projects that are tied to financial obligations but has no immediate value.

Secondly, when borrowing limits are set for state domestic debts, it instills financial discipline on the government to pay back on time, thus helping them exercise restraint and use good financial judgment.

Furthermore, when limit is set on borrowing, the state government will tend to sustain the on-going reforms and initiatives in the various key sectors of the economy which includes agriculture, education, housing, power, and transportation, as this will foster the needed inclusive economic growth and development.
In addition, it will help the state government to develop the conscious effort to look inward and identify economic potentials that are available. When these potentials are identified, it should be harnessed and laws that encourage indigenes should be set up so as to encourage indigenes to set up enterprises that will enable the creation of employment for the people which will in turn contribute to the Gross Domestic Product (GDP).
Conclusively, debt should be expended on strategic area of the economy, investment in infrastructural development and agricultural innovation that has high multiplier effect. A system should also be set up to monitor how these funds are expended from time to time. If this is done our state indebtedness will be reduced and each regime won’t have to borrow more than what it needs to carry out a project thus leaving a huge amount of debt for the next regime to pay back.