Thursday, July 02, 2015

Debt Stock Of N12trn Worsens Nigeria’s Economic Woes


Nigeria’s total internal and external debt stock stood at N12.06 trillion or U$63.5 billion as at the end of March this year, up from N11.2 trillion or US$67.726 billion in December 2014 according to figure released by the Debt Management Office (DMO) yesterday.

The rise in the naira quantum of the outstanding debt is mainly due to the devaluation of the naira against the dollar.

According to DMO, the total external debt of the federal and states stood at US$9.464 billion or N1.864 trillion as against the US$9.711 billion as at December 2014.

Federal Government domestic debt DMO said stood at US$43.185 billion as at March 2015 against the figure of N7.9trillion or US$47.05 billion in 2014. This gives a grand total of US$63.506 billion or N12.06 trillion.

Vanguard report continues:
As at December last year, the total debt stock of the Federal Government and the 36 states of the federation including the Federal Capital Territory amounted to N11.243 trillion or US$67.726 billion.

States and the Federal Capital Territory as at 31st December 2014 had a domestic debt profile of N1.707 trillion or US$10.967 billion. Federal Government’s domestic debt, on the other hand, stood at US$47.05 billion or N7.9 trillion, while those of the states stood at US$10.97 billion or N1.708 trillion.

Federal Government’s domestic debt is made up of N5.370 trillion bonds, N2.885 trillion Treasury bills and N271.2 billion treasury bonds.

But as at June last year, states in the federation had a domestic debt stock of N1.551 trillion or US$9.963 billion. The Federal Government’s share of the rising external debt then stood at US$6.363 billion.

Although the DMO did not show the debt profile of state governments as at March 2015, last year December profile showed that US$3.146 billion of the debt owed by states were borrowed from multilateral institutions while US$118.9 million were bilateral loans.

In the case of the Federal Government, US$3.652 billion were loans sourced from multilateral institutions while a total of US$2.793 billion were loans obtained from China Export-Import Bank and the funds the Federal Government raised from Eurobond.

Lagos, Kaduna, Cross River, others have high external debt profile

The external debt profile of states has shown that Lagos State has the highest with a profile of US$1.087 billion, followed by Kaduna State with a total of US$234 million.

Cross River State followed closely with an external debt profile of US$131.469 million. Other states with relatively large external debt are Edo US$123 million, Ogun US$109 million, Bauchi US$87million, Enugu US$62 million, Katsina US$78 million, Osun US$67 million and Oyo State US$72 million.

The figure announced by the DMO confirms claims by Vice President Yemi Osinbajo that the country’s debt stood at some US$60 billion at the end of Goodluck Jonathan’s term, after he lost to President Muhammadu Buhari in March elections.

FG debt sustainable

The DMO said, however, that the Federal Government debt is sustainable as its debt sustainability analysis showed that the debt/GDP ratio was only 2.4 per cent. The bulk of the Federal Government loans were concessionary with low interests and long moratorium.

Based on the rising domestic debt profiles of state governments, the Federal Government last year directed banks not to grant fresh loans to state governments until they got the relevant approval and clearance from the Federal Ministry of Finance. The Federal Government had defended its decision to dissuade banks from granting unsecured loans to state governments, saying it was to protect the states from excessive accumulation of debts.

The then Minister of State for Finance, Bashir Yuguda, had said that the decision was not aimed at stalling the development efforts of the state governments. The minister said that most of the states have been experiencing difficulties in servicing their existing debts and it would not be advisable to allow them take fresh loans.

  Debt profile scary

Yuguda, who was delivering a lecture entitled: Nigeria’s Economic Policies and Reforms: An Assessment of the Real and Informal Sectors, said the country’s overall debt profile, particularly those of the state governments, was scary.

Though he did not provide specific details then, the minister emphasized the need for the states to continue to look inwards for other sources of revenue to pursue their development programmes.

As at December 2013, the total stock of external debt was US$8.821 billion indicating a rise of US$556 million in the first half of 2014. But as at December 31, 2012, Federal Government’s external debt was US$4.14 billion as against a total debt stock of both federal and state governments of US$6.5 billion.

As at June last year, Federal Government’s borrowing from multilateral institutions amounted to US$3.826 billion while loans from bilateral sources mainly China Exim Bank and Eurobond amounted to US$2.537 billion.

In the case of states, a total of US$2.904 billion was sourced from multilateral institutions; US$108.9 million was obtained as loans from bilateral sources, thus making the states’ total outstanding external debt as at June 2013, US$3.013 billion.

Director-General, Debt Management Office, Dr. Abraham Nwankwo had said last year that although the debt profile had increased, he assured that the debt remained sustainable at a ratio of 12.51 to the Gross Domestic Product, GDP. The D-G also said that the managers of the nation’s debt would apply more caution in further borrowings in order not to run into the crisis of debt overhang, which the nation once suffered.

His words at the time: “The sovereign debt is doing well. Currently, our total sovereign domestic debt for federal, states and the FCT is about N8.9 trillion and external debt is about US$9.38 billion. Our current debt/GDP ratio is about 12.51 per cent which is much lower than the 56 per cent total public to GDP for countries of Nigeria’s group.”

“However, this is not an indication that Nigeria can afford to borrow without caution. In spite of the re-basing which means we have more capacity to borrow, we are not going to borrow without caution. In fact, we are going to be more cautious, especially because our Tax:GDP ratio is low. Many economic agents do not pay their taxes.”

Dr. Nwankwo had also said that the Eurobond initiative which commenced in 2011 with the floating of the US$500 million Eurobond had positively changed the profiles of Nigerian corporate organizations and their ability to raise long-term funds from the international capital market.

The Federal Government raised additional US$1 billion from the international capital market in 2013 following which several Nigerian firms, especially banks, went to the international capital market to raise funds for their operations.

According to him, six companies issued nine bonds within the last one year, from which about US$3.4 billion was raised. The DMO boss said his team would ensure that the funds raised from the capital markets both at home and outside, were utilised profitably in the interest of the nation’s economy.

The D-G disclosed that the funds raised from the Eurobond had been deployed to very critical sectors of the economy, requiring urgent financing to boost the economy, especially, the electricity power, agriculture, solid minerals and the dualization of the Airport and Kubwa roads in Abuja.

Nwankwo said his team had managed the nation’s debt in line with the national priority needs with a view to creating full values for funds borrowed in order to ensure maximum benefits to the economy.

His words: “We have tailored the nation’s debt management in accordance with our peculiarities. We have used debt management to leverage development of the private sector and it has helped them to raise money to boost the real sector such as manufacturing, solid minerals, agriculture and electricity power supply.

“We have to develop the capital market to develop long-term debt instrument such that rather than what the banks have been used to in terms of giving out 91 day loans, we now have debt instruments of up to 20 years. We have made it possible for the companies to float their own bonds in the domestic market such that between 2005 and 2013, 23 companies raised N223 billion.

“The implication is that with operators in the real sector of the economy being able to raise long-term funds, they can expand their businesses, increase productivity and create more jobs across the country on a sustainable basis.”

Last August, two international rating agencies, Standard & Poor’s and Moody had upgraded Nigeria’s credit rating because of improved financial stability and optimism over reforms to the banking and electricity sectors. Moody upgraded Nigeria’s rating assigning local and foreign currency issuer ratings of Ba3 to the government. Standard and Poor ratings raised its long-term foreign and local currency sovereign credit rating to BB- with a stable outlook. This is three points below investment grade, from B+. This brings its view in line with Fitch’s rating.
The three foremost rating agencies in the world have all now agreed that Nigeria is managing its resources better than before.

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