How DMO Paid ₦4.8tr Servicing Domestic Debt Interest In Five Years

The Debt Management Office (DMO) paid out over ₦4.8 trillion as interests in the last five years to banks and other investors. The money was lent to Nigerian Government from the domestic market through the FGN Bonds; Treasury Bonds or Treasury Bills issued by the Central Bank of Nigeria (CBN) as part of measures to check inflation caused by excess liquidity in the economy.

The Guardian Nigeria report continues:

This figure excludes the repayment of the principal sum borrowed, some of which matured during the period and were promptly settled. The figures obtained exclusively by The Guardian yesterday from the DMO covers the period between January 2012 to March 2017, with the sum of ₦449.060 billion being the amount paid for the first three months of the year 2017.

A breakdown of the interest service payments, indicate that between 2012 and 2013, ₦701.379 billion and ₦794.104 billion was paid out as interest service charge. The following year, the sum grew to ₦865.809 billion, whereas in 2015 and 2016, the amount galloped to ₦1.018 trillion and ₦1.228 trillion respectively.

The cumulative amount on the interest service represents nearly Nigeria’s entirely year fiscal budget. The development is as the Federal Government is yet to make any release for the 2017 capital votes for the implementation of infrastructure projects, which have growth multipliers effect on the country.

At the close of the first quarter of 2017, Nigeria’s domestic debt stock had climbed to ₦11.971 trillion from ₦6.201 trillion five years earlier in the year 2012 within the period under review.

The huge interest shows the high interest regime in the Nigerian financial system even in the less risky investment platform such as the Federal Government sovereign Bond issue ranging from around 5% to as high as almost 15% depending on the tenor of the issue, considered by economic watchers as one of the highest and competitive in Africa.

Also, the DMO interest benchmark rate is believed to be the major modulator or driver of interest rate regime as well as major enemy of the real sector growth in the Nigerian economy as deposit money banks who are the major investors in the bond issues would prefer to invest in the safe haven of the FGN bonds than lend to operators of the real sector, thus stifling the growth in the sector through a crowding out effect.

Most importantly, there has been growing concerns that the funds raised from the monthly issues of the Bonds by the DMO to fund the fiscal budgetary deficits cannot be accounted for because the Bonds as not project- specific and most time end up as overheads, such as entertainment for political appointees in which case they no longer become geared for growth purposes.

The out-gone Director General of the DMO, Dr. Abraham Nwankwo, however offered explanation for the rising cost of Nigeria’s domestic lending environment in a statement.

According to Nwankwo; “The stock of FGN’s domestic debt rose steadily from ₦6,537.54 billion as at end-December, 2012 to ₦11,058.20 billion as at end-December, 2016. This development was largely due to the reliance on domestic debt to fund rising budget deficit and refinancing of matured domestic debt obligations.

“The composition of the debt portfolio was consistent with the debt strategy of using more of longer dated instruments to minimize refinancing risk. Further review shows that, the stock of FGN Bonds and NTBs increased from ₦4,080.05 billion and ₦2,122.93 billion in 2012 to ₦7,564.94 billion and ₦3,277.28 billion in 2016, respectively. The stock of Treasury Bonds has continued to go down from ₦334.56 billion in 2012, to ₦215.99 billion in 2016, due to a gradual redemption of the instrument over the years without new issues,” he explained.