The two-year
debt service ratios released by the debt office showed that of the N6.32
trillion combined revenues for state and federal governments in 2015,
only 28.1 per cent went to debt service in 2015. However, the figure
will rise marginally to 35.32 per cent of the N3.85 trillion revenue for
the Federal Government alone, this year.
These
figures by the debt office have put to rest claims by the Islamic
Development Bank (IDB) that the country spends about 80 per cent of its
revenue to service debt.
The IDB Country
Representative in Nigeria, Mumammed Kiliaki, ranked Nigeria among the
countries using the largest percentage of its revenue to service foreign
debts. He declared that Nigeria spent 80 per cent of her revenue on
debt servicing.
Kiliaki, who spoke during an
interaction with Senate Committee on Local and Foreign Debts, headed by
Senator Shehu Sani, said the development was responsible for the
bleeding of the economy.
He said though
Nigeria’s debts to Gross Domestic Product (GDP) ratio is low at 17 per
cent, adding that the resources being used to pay the debts were
enormous. He said for Nigeria not to get itself suffocated by such huge
debt servicing profile, there was the urgent need for the country to
expand the scope of its resources through diversification of the
economy.
Debt profile:
Nigeria’s total
debt increased to N12.60 trillion ($65.42 billion) as of December 2015,
up from N11.2 trillion in 2014, the DMO announced. In a statement on
its website, the DMO said foreign bonds and loans stood at $10.7 billion
or N2.1 trillion at the end of December, equivalent to about 16 per
cent of total debt and up from $9.71 billion at the end of 2014.
It
also disclosed that domestic debt rose to N8.83 trillion last year, up
from N7.9 trillion in 2014. DMO added that domestic debt of states stood
at N1.65 trillion or $9.85 billion. The DMO’s statement comes on the
heels of announcement by the African Development Bank (AfDB) that
Nigeria had requested for a loan of $1 billion to help fund its budget
deficit for 2016 fiscal year.
The Federal
Government has said it is planning to borrow as much as $5 billion to
help fund the expected deficit of N3 trillion in 2016, which is up from
an initial N2.2 trillion estimate.
Minister of
Finance, Mrs. Kemi Adeosun, disclosed that Nigeria held talks with the
World Bank and was considering options to borrow from the AfDB and China
Exim Bank.
Adeosun said about $4 billion might come from international institutions and the balance from Eurobonds.
In
December, President Muhammadu Buhari presented a N6.08 trillion budget
for the year to the National Assembly, an increase from N4.4 trillion
for 2015, which the government hopes will help tackle an economic crisis
triggered by the plunge in oil prices.
However,
the DMO Director-General, Dr. Abraham Nwankwo, insisted that the
country’s public debt-to-GDP remained sustainable despite the slump in
crude oil prices. According to him, while other countries base their
borrowing on debt- GDP ratio of 56 per cent, Nigeria will not exceed
19.39 per cent until 2017.
He said: “Our debt
continues to be sustainable, despite all these volatilities in the
international capital market and the collapse of oil prices. However, it
does not mean that Nigeria should go and sleep, and hope that
providence will continue to provide for them.”
He
noted that the country has abundant resources in agriculture, solid
minerals, Information Communications Technology (ICT), among others,
that offer ample opportunity for diversification of the economy to boost
revenue.
It will be recalled that during her
visit to the country last month, the Managing Director of the
International Monetary Fund (IMF), Christine Lagarde, said given the
determination and resilience so far displayed by Buhari and his team,
Nigeria does not need any loan from the Fund.
She stated that though Nigeria did not need IMF loan, fiscal discipline was needed for the country to be sustainable.
Debt servicing:
Data
from the DMO showed that the total external debt service payment for
the year 2004 was $1.75 billion compared to $1.81 billion in 2003,
reflecting a decrease of $0.054 billion or 3.01 per cent. The external
debt service payments of $1.75 billion comprised of principal repayments
of $1.17 billion, and interest payments and commitment charges of
$0.589 billion.
Payments to the Paris Club
creditors took the lion’s share amounting to $0.994 billion or 56.67 per
cent. $0.487 billion or 27.77 per cent was paid to multilateral
institutions, $0.090 billion or 5.14 per cent to London Club, $0.171
billion or 9.76 per cent to the Promissory Note holders and $0.012
billion or 0.66 per cent to non-Paris Club Bilateral creditors.
“The
$1.75 billion debt service paid in 2004 is actually well below the debt
service due for the year of $2.99 billion. This arises from the fact
that Nigeria has not fully serviced its Paris Club debts, as an amount
of $2.23 billion was due while only $0.99 billion was paid. The
shortfall transforms into arrears and attracts severe penalty interest.
This very process has contributed to the explosion in Nigeria’s external
debt stock over the years,” the debt office said.
DMO’s monthly auction:
A
report by FBN Quest, an investment and research firm, said the DMO’s
monthly auction of FGN bonds last Wednesday raised its target of N100
billion from the sale of three issues including a new 20-year benchmark.
The total bid of N262 billion was highest since July 2014 when the DMO
launched a new long bond.
The firm explained
that the figure was no coincidence since the Pension Fund Administrators
(PFAs) have a healthy appetite for long-term assets to match their
liabilities. The prevailing abundance of liquidity, it said, would
equally have fuelled demand. The DMO can also be pleased with the
downward monthly trend in marginal rates.
The
cut-off point of 12.40 per cent for the new March 2036 compares with
that of 12.15 per cent for the previous benchmark (the July 2034).
The
FBN Quest explained that since inflation has picked up by three
percentage points in the intervening period and since offshore interest
has evaporated, the DMO should be pleased with the new effective coupon
on the instrument.
It demanded that the 2016
budget should be approved well before the next auction, which would give
the DMO a better platform for its issuance calendar for June, this
year. The Federal Government’s budget proposals project net domestic
issuance this year of N950 billion. The onus falls upon the DMO since
the CBN’s sale of treasury bills is likely to remain flat.
In
2004, the DMO made plans to build on the success of the first FGN Bonds
floatation that were first issued in 2003. The DMO embarked on the
arrangements to commence the issuance of bonds on a regular basis in
small tranches that the market could accommodate.
The
DMO commenced the smoothening and restructuring of the Treasury Bills
in 2004. The restructuring entailed extending the maturities of the
existing Treasury Bills by issuing tenors of six, 12, 24, and 36 months,
to refinance part of the existing 91-day Treasury Bills.
The
Nigerian Bond market remained undeveloped, particularly the secondary
market for government securities and the DMO put in place a framework
for the development of a vibrant secondary market.
The
DMO was established on October 4, 2000 to centrally co-ordinate the
management of Nigeria’s debt, which was hitherto being done by a myriad
of establishments in an unco-ordinated fashion. This diffused debt
management strategy led to inefficiencies.
It
was expected that the coming of DMO would lead to good debt management
practices that make positive impact on economic growth and national
development, particularly in reducing debt stock and cost of public debt
servicing in a manner that saves resources for investment in poverty
reduction programmes.
The body is also expected
to prudently raise financing to fund government deficits at affordable
costs and manageable risks in the medium and long term; achieve positive
impact on overall macro-economic management, including monetary and
fiscal policies; avoid debt crisis and achieving an orderly growth and
development of the national economy.
Lagos IGR example:
CBN
data for 2014 revealed that internally generated revenue (IGR) provided
21.8 per cent of the total revenue of the 36 states and the Federal
Capital Territory, compared with 15.3 per cent the previous year.
Aggregate
IGR grew by 37 per cent to N801 billion from N586 billion in 2013.
Again, Lagos emerged as the leading state achieving an IGR/total revenue
ratio of 67 per cent while Ogun, Rivers and Anambra managed 40 per
cent, 32 per cent and 31 per cent respectively.
The
report said given that the oil price has been on the slide since
mid-2014, states have no choice but to reduce their dependence on the
oil-driven monthly distributions from the Federation Account Allocation
Committee (FAAC) by bolstering their IGR.
*Collins Nweze contributed this article from Lagos. Sources - Nation newspaper.
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