(a) Explain the term national debt. (b) State any four instruments of government borrowing in Nigeria.

Answer Details

(a) National debt. The national (public) debt is the total amount of money owed by the government of a country to its creditors, both at home and abroad, at a given point in time. It arises when the government repeatedly spends more than it receives in revenue and borrows to cover the deficits; the accumulated borrowing, together with the interest owed on it, forms the national debt.

It has two parts: the internal debt (owed to individuals, banks and institutions within the country) and the external debt (owed to foreign governments and institutions such as the World Bank).

(b) Four instruments of government borrowing in Nigeria:

1. Treasury bills short-term instruments (usually 91 days) sold to raise funds for a few months.
2. Treasury certificates medium-term instruments running for one to two years.
3. Federal Government development stocks (bonds) long-term securities used to raise money for development projects.
4. Ways and Means advances short-term borrowing by the government from the Central Bank to meet temporary cash shortfalls.

Examination takeaway: in part (b) name the actual instruments (bills, certificates, bonds, advances), not the general sources such as "the public" or "foreign countries".