Key Takeaways
- Public debt is the amount of money owed by a government to its creditors, including individuals, corporations, and other governments.
- Public debt is one way for a government to get extra funds for economic development.
- Public debt can lead to severe economic problems when not properly managed.
- Nigeria has a public debt of about N44.06 trillion ($101.91 billion) as at the third quarter of 2022.
Jump to a section
- What is Public Debt?
- Public Debt in Nigeria
- Sources of Public Debt
- Types of Public Debt
- Advantages and Disadvantages of Public Debt
What is Public Debt?
Public debt is the total amount of money a government owes. It is the total sum of debts and liabilities the government has incurred from people, organizations, or other countries. The amount of public debt a government owes indicates how much it can handle future obligations.
Public Debt in Nigeria
The need to meet up with financing the rising expenditure by the government has led to a public debt of about N44.06 trillion ($101.91 billion) in the third quarter of 2022, according to the National Bureau of Statistics.
This implies that Nigeria like some other countries is in public debt. While for some countries, public debt has helped in aiding economic growth, the same cannot be said for Nigeria. Public debt in Nigeria has led to restrictions on economic growth and development.
Sources of Public Debt
Public debt results from accumulation. This implies that the government borrows from many sources which can be local or international.
- Individuals
- Organizations,
- Banks
- Other countries.
Nigeria, for instance, has collected loans from foreign countries like China (owing about $4 billion) and international organizations such as the IMF, and World Bank.
Types of Public Debt
- Internal public debt: Internal public debt, as the name implies, is incurred locally within the country from individuals, organizations, or banks. For instance, Nigeria is owing the Central Bank of Nigeria (CBN) about N23 Trillion.
- External public debt: External public debt is incurred from international sources outside the country.
Advantages and Disadvantages of Public Debt
Advantages
Though it may seem bad but public debt actually has some advantages.
- Extra funds for the country: Public debt is one of the ways for a country to get extra funds for economic development. This way, a country can plan and undergo bigger projects that can aid its development.
- Access to Investors: The concept of public debt gives room for investors to invest in countries because it involves the government thereby giving them a sense of security.
- Economic Growth: When the money is used correctly, public debt can improve the standard of living in a country which will further lead to economic stability and growth.
Disadvantages
Despite having some advantages, public debt can also have negative effects on a country.
- Economic Recession: Public debt can cause an economic recession when not properly managed. A country in huge debt will barely have enough to meet up with the rising demands of governance.
- Loss of Credibility: When a government cannot pay its debt, it begins to lose trust and credibility and will have a hard time collecting loans subsequently either locally or internationally.
- Loss of Investors: A huge public debt can deter investors from investing in the country. It also amounts to higher interest rates for subsequent loans and transactions.
- Loss of Assets: When a country cannot repay its debt, it can lead to the loss of government assets locally and internationally.
How can a government repay public debt?
The government should pay public debt according to the terms of agreement with the lenders. A major way for them to repay public debt is through taxes.
Is public debt a bad thing?
While public debt has some pros, it can also affect the country adversely when it’s not managed properly, becomes too high, or is difficult to repay.
Can public debt be avoided?
If a country has enough resources to generate revenue that’s needed to develop itself, public debt can be avoided.
What happens when a government cannot pay its debt?
When a government cannot pay its debt, it can lead to:
- Exclusion from further credit
- Reduced/lack of investors
- Forfeiture of international properties
Bottom Line
A country needs to do what it can to develop itself but it should not be at the expense of its economic growth and stability. Public debt, especially in Nigeria, has negatively impacted economic growth. Hopefully, with a good debt management plan, Nigeria will be able to come out of debt and build a strong economy.
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How can I collect my money back once is mature
You sell the units.
Hw can I get my money back…. When I have emergency cases….. cause am in need of it now??
How can I collect my money back once is mature.on mutual benefit
there is a sell option …or am I wrong?
Yes, there is
What a great teaching today Mr. Ope. Thank you sir. Please, i plead for more of these teachings
Well explained, well understood
Thanks for teaching Mr ope
Good and straight to the point.
Teaching is in-born in you; keep it up.
How can I turn my daily savings to investment for Mutual funds
Once they mature, you can transfer them to mutual funds.
I always love your teaching… Can’t wait for another ???
Very much thanks for this update. But please put me to light in a situation you are to contribute a fixed amount to run for let’s say three years and along the line one is not able to make it to the end due to unforseen circumstances after a period of say five months. What will happen to his contribution?
It will keep earning.
What about me that I invest with #1000,and I cash back with dat 1000,which kind of invest is that
This is insightful and i like the pizza explanation thingy. Is mutual fund risk free or there is any chance of default?
Thanks for your kind words. There varying risk levels for mutual funds. On Cowrywise, we have hem categorized from low-risk to high-risk. To find your best fit, we’ll take you through a short risk assessment.
Well understood…cheers?
That’s great to know.
clementogbewe@gmail.com
What is the parcentage interest rate of all the mutual funds?
Lol! May be free investment ,???
Ope ?
Thank you very much for the explanation. It breaks the whole concept down to perfectly understandable bits.
Now, my question is this – high risk mutual fund investments, where the YTD earning is something negative (as sometimes seen on the CowryWise platform), how do people actually make money from those?
I am always happy and expectant to get a mail from you, Ope, because I know I am about to learn something new.
Thank you for teaching with the whole illustration, I understood mutual funds better.
PLEASE I WOULD LIKE YOU TO EXPLAIN CALL UPTION AND HOLD UP TION
How do you know the maturation period
Hi Henry.
Only savings plans on Cowrywise have maturity dates.
You can purchase and sell your investments on Cowrywise at any time.
However, we always advise you to stick to a long-term investment strategy.
Thank you vary much ope for your explanations.
My question is can one deposit dollar In cowrywise stash??????????.??..
Nice of u cowrywises keep it up.
I believe cowrywise is gonna make this country different.
Why did they stop automatic debit oooooooo