Government borrowing can be an important tool for economic policy, helping the country to finance projects, cover budget deficits, and deal with negative shocks. However, excessive borrowing can lead to economic problems, such as financial crises, trade imbalances, and lower economic growth. Although, most of the resources required for public spending are raised each year through taxation, it is rare for any modern budget to balance in any one year.

For a variety of reasons, ranging from a desire to accelerate capital spending to a policy of economic stabilization, governments may choose to raise some of their resources by borrowing rather than taxation. But in Nigeria reverse is the case. Government chooses to raise money through taxation and borrowing.  By implication, it means the people are being double taxed.  What is the actual position of the economy, one may ask? This question is asked because the government keeps telling the citizenry that savings from the removal of oil subsidy amounted to One trillion Naira every month and a sane person will ask why do we need to borrow so much when the colour of the economy that is been painted before us signifies that everything is well?

 In my opinion, I think when the government is contemplating on borrowing, the interest of the people must be considered.  Democracy is government for the people but in this case, Nigerian democracy is a government for the few.  Any new government coming in will continue to lament the debts left behind by the previous government and that is exactly what we are witnessing in Nigeria today.

You will recall recently that the Federal Government borrowed N20.1 trillion from domestic investors in the first year of President Tinubu’s administration, representing year-on-year increase of 117 per cent from the previous year, prompting concerns over its impact on the economy including likely additional pressure on inflation, increased debt service cost and higher borrowing cost from businesses. 

Analysts noted that the sharp increase in Federal Government’s borrowing has the potential to compound the historic high inflationary trend in the country which may lead to further interest rate hikes by the Central Bank of Nigeria, and by extension increased cost of borrowing for businesses and individuals. The increase in borrowing by the government means that there will be more spending by the government, which will have a huge impact on inflation as it will drive demand for goods.

Governments are always the largest spender in the world, so the more money they spend, the higher the attendant inflationary pressure. Note also that since they are borrowing at record levels, it means that when they are servicing the debt, they will put a lot more funds in the hands of the public.

In times of inflation, it may be possible for a government to run a deficit without actually increasing the real burden of debt as inflation erodes the real value of its existing debt. The necessity for governments to borrow in order to finance a deficit budget has led to the development of various forms of public debt, which are now a central feature of all capital markets and a problem to the down trodden.

Governments may owe public debt in the form of bonds, notes, bills, and the like, which require specified payments to the holders at designated times. For the most part, public debt differs from private debt only in that it is an obligation of government rather than of private individuals or corporations. Government borrowing in the strict sense includes only borrowing from the private sector of the economy, from individuals, corporations, and various financial institutions, including banks especially World Bank.

When the government obtains its funds from the Central Bank, it is really creating money rather than borrowing it, since the purchasing power is made by the Central Bank and no obligations to the public are created. When the government creates money from the Central Bank, the effect of the load is borne by the people.

Funds loaned to the government almost certainly come from savings, unlike, for example, funds paid in higher taxes, which are more likely to come out of consumption. To pay higher taxes, many individuals are forced to reduce their consumption since they have no margin of savings and are unable or unwilling to go into debt; others do so as a matter of choice, in an effort to keep their savings intact. If government borrowing raises the market rate of interest, this may in turn encourage the diversion of additional money to saving.

The net effect of government borrowing on total spending and thus on employment and national income depends upon its influence on real investment. In a period of unemployment, when savings are available in greater quantity than is required for investment, government borrowing does not compete with private investment nor make it more costly. In effect, the government absorbs funds that would otherwise be idle. In periods of full employment, the situation is substantially different.

When governments borrow they must meet interest obligations, and these are usually paid out of taxes. The payment of interest on government debt thus involves a transfer of wealth from taxpayers to bondholders. The taxes are having adverse effects upon the people, while receipt of the interest will provide no offset to these adverse effects.

The tax-and-interest-payment program is also likely to redistribute wealth in favour of higher income groups, since government bonds are likely to be held to a greater extent by those groups. The effect may be to increase savings and reduce consumption.

Finally, large interest obligations lessen the ability of the government to finance other governmental activities. This effect is particularly obvious at the local level, where there are limited tax potentials. The government should consider the interest of the people and consider those things that will impact positively on the lives of the people.

God Bless Nigeria!!!