Debt is like any other trap – it is easy to get into, but hard enough to get out of.” High levels of external debt pose greater risks than internal debt because repayments in foreign currency are more exposed to foreign exchange rate which are usually unfavorable.
In Nigeria, there are several factors or reasons that cause huge debts which could consist of high government budget deficits such that budgeted expenses exceed revenue generation which impedes economic growth. Also, low output growth and huge recurrent and capital expenditures undermine the economic growth of Nigeria.
Unfortunately, the effects of accumulated debt has discouraged investments on various sectors like education, health, infrastructures and the likes as huge portion of the revenues are used in repaying back creditors.
The solution is not a quick fix. Accountability is required, deliberate effort of the government to manage her borrowings, decrease spendings on recurrent and capital expenditures, increase her revenue perhaps by raising taxes, change her style of budgeting from incremental budgeting to zero based budgeting system with the aim of removing unnecessary and wasteful spending from the budget. In this way, every aspect of government expenditures is reviewed or examined in terms of its cost and benefits and selection of better alternatives are encouraged.
Conclusively, a country that lives persistently beyond its means will eventually become unable to make good on its fiscal policies and defaulting on its debt.