By Ishaya Ibrahim
The World Bank has said it is in talks with Nigeria for a $2.5 billion loan to help boost its economy, Hafez Ghanem, its vice president said.
“We’re talking about a new set of programmes of about the same amount, it should be around $2.5 billion,” he said.
Nigeria’s mounting debt means an already sluggish economy will experience marginal growth. Already, its domestic debt stands at $55.6 billion while foreign loans is $25.6 billion, representing 22 per cent of the Gross Domestic Product (GDP).
When Nigeria receives this fresh $2.5 billion from the World Bank, it means more than half of its revenues would be spent on servicing debts, a situation the International Monetary Fund says is risky.
The international benchmark for public debts is 60 per cent of GDP. But Nigeria’s economy may not fall in that category because its revenue is largely dependent on oil and gas with a history of price instability.
Economists have argued that high public debts is a disincentive for economic growth because these debts are borne by tax payers.
To ease the mounting debt burden, countries are likely to adopt one of these options which in the case of Nigeria, leaves the people poorer.
The options are: Run a high inflation rate, hoping this will eat away their debts; increase tax rates; and cut spending.
All three approaches diminish private and corporate confidence which often stalls growth.