Alarming! FG Borrows N6trn In 2 Years

Nigeria’s public debt stock as at June 30, 2018 stood at N22.3 trillion. Out of this amount, N12.15tn (roughly 50 per cent) was borrowed by the Federal Government from the domestic debt market, figures available on the website of the Debt Management Office, DMO, says.

The DMO said that at the end of June 2016, the country’s total debt was about N16 trillion, representing an increase of over N6 trillion in two years.

According to the DMO figures, the Nigerian government’s domestic debt stood at N16.62 trillion in 2018, as against N13.1 trillion recorded in 2016. This represents a domestic borrowing increase of 27 per cent.

On the other hand, Nigeria’s external debt for the federal and state governments rose from N3.18 trillion to N6.75 trillion in two years, representing an increase of N3.57 trillion.

The DMO noted that the official exchange rate of N305.70 to $1 was deployed in calculating the country ’s external debt for June 30, 2018, while the official rate of N283 to $1 was used in determining the foreign debt for June 30, 2016.

The data equally revealed that the federal government spent a total of N1.58tn on domestic debt servicing in the first half of 2018.

The huge payment on debt servicing shows how far the country’s debt profile has risen over the years especially in the last three years.

At a recent press briefing, Director General of DMO, Patience Oniha, had hinged the rising debt profile on the need to continue offering government services despite the challenge of dwindling revenues from oil.

She also dismissed insinuations that the government had been borrowing frivolously, noting that it had always obtained approval from the National Assembly before embarking on any borrowing exercise.

According to data from Budget Office of the Federation, of the N7.4 trillion budgeted for the 2017, N1.8 trillion (about 25 percent) was used for debt servicing, with domestic debts gulping N1.5 trillion, while foreign debts took N175 billion.

N2.9 trillion was used for recurrent expenditure, while N2.1 trillion for capital expenditure.

President Muhammadu Buhari had last year said the deficit of N2.36 trillion for the 2017 Appropriation Bill, which was about 2.18 percent of the GDP, will be financed mainly by borrowing, which was projected to be about N2.32 trillion. From the figure, government sourced N1.06 trillion or about 46 percent of the borrowing from external sources while N1.254 trillion from the domestic market.

This means that out of estimated N2.32 trillion borrowed to finance the budget, N2.1 trillion went for capital projects.

The Millennium Development Goals was introduced in 2000 to be implemented across the developing countries till 2015 and with the hope that poverty would have reduced by the end of the period. The World Development indicator of 2015 shows that the number of people living in absolute poverty or on less than $1.90 per day worldwide reduced from 37.1 per cent in 1990 to 12.73 per cent in 2012. For Africa, where Nigeria represents more than half of the population, there was a slight cut from 56.75 per cent in 1990 to 42.65 per cent in 2012. For Nigeria alone, the National Bureau of Statistics figures for those living in absolute poverty rose from 54.7 per cent in 2004 to 60.9 per cent or almost 100 million people in 2010. That was despite huge revenues from oil and borrowing from international markets but before Boko Haram insurgency and massive fall in oil revenue since 2014. The percentage has since increased!

In June, Nigeria overtook India as the country with the largest number of people living in extreme poverty, according to a report by the World Poverty Clock.

According to the report, extreme poverty in Nigeria is growing by six people every minute, the highest number in the world.

At the end of May (2018), the survey showed that Nigeria had an estimated 87 million people in extreme poverty, compared to India’s 73 million.

Former Anambra State governor, Peter Obi, had recently raised the alarm over Nigeria’s rising debt profile, saying it should be controlled immediately as it is getting out of hand.

Obi, who was a guest on Channels Television flagship programme, Sunrise Daily, believed the Nigerian government uses almost 50 percent of its revenue to service debts and yet continues to borrow.

He said every known respected financial institution globally has warned Nigeria against its rising debt, including the World Bank and the International Monetary Fund, IMF.

He also lamented the poverty level in the country, saying the latest statistics shows that 10 million more Nigerians became poorer within the past three years.

The Managing Director/Chief Executive Officer, Financial Derivatives Company Limited, Mr. Bismarck Rewane had also expressed concern over the nation’s foreign debts.

Rewane who spoke recently during a presentation at a breakfast session sponsored by Rand Merchant Bank in Lagos, said the forecast for the nation’s economy showed a mixed outcome of positivity and negativity.

“The pressure on the exchange rate will build up due to increased liquidity and demand pressures, and there would be a temptation to appreciate the naira for political expediency. Key policy reforms will take the back burner for politics. Nigeria’s foreign debt service will become a potential problem. Nigeria’s external trade will be more balanced between Asia, the European Union and America.”

Christine Lagarde, the IMF Managing Director, opined that Global debt stood at $164 trillion which were 25% of global GDP. She lamented that the rising debt levels presented a risk to low-income countries.

Lagarde said such countries may face hardship and be unable to repay these debts if they do not look for alternative measures to borrowing. But former Nigeria’s finance minister, Kemi Adeosun dismissed the insinuation, saying Nigeria was not among low-income countries.

Government officials argue that the country needed to borrow to accelerate its revenue strategy aimed at diversifying Africa’s biggest economy away from its reliance on crude oil sales, after the Nigerian economy fell into one of its worst recession in decades. Crude oil sales make up about two-thirds of Nigeria’s government revenue.

The federal government increased spending on infrastructure in the 2017 budget to fund projects such as the $5.8 billion Mambilla hydropower dam and a second runway for the airport in the capital Abuja, as well as railway and road construction, with the aim of diversifying the oil-dependent economy.

Experts say the need for borrowing is more apparent in a recession when an economy needs a boost, but there are fears that alleged corruption in government has been a mitigating factor to the country’s economic growth.

Adeosun had argued that the government needed to borrow, noting that the recession would have lasted longer if they hadn’t borrowed.

“Absolutely not! What we are borrowing for is what you have to look at. If you are borrowing to pay salaries, travels, do training or in a wasteful venture, then you have to be worried. But if you are borrowing for long-term infrastructure, those are the investments that allow business to thrive. You cannot ask someone to come and fix a factory where you know he cannot move his goods from one place to another after producing them. Such investors won’t come.

“Infrastructure is a real asset. So, I am not worried about borrowing. Our debt to Gross Domestic Product ratio remains very low – one of the lowest in Africa. And we are working very hard to increase our revenue to make sure our debts are serviced adequately. The alternative, when we were in recession, was to wait for oil price to recover. That alternative would have created a very long recession had we not taken action then to spend. If we hadn’t done what we did, to borrow and invest in the economy and infrastructure, the recession would have lasted longer than what it eventually was. Besides, the projects we are hugely investing in are long-term projects that will provide growth,” she told the Punch.

Latest GDP figures by the National Bureau of Statistics indicate that Nigerian economic growth slowed in the second quarter of this year, with the economy recording a decline in performance from 1.95 per cent in the first quarter to 1.5 per cent.

The bureau, in the report which was made available to our correspondent, said the second quarter growth rate was constrained by contractions in oil GDP.

It said oil GDP contracted by -3.95 per cent in the second quarter, as against 14.77 per cent in the first quarter of this year and 3.53 per cent in the second quarter of 2017.

Similarly, the consumer price index, (CPI) which measures inflation increased by 11.23 percent (year-on-year) in August 2018. The latest figure is 0.09 percent points higher than the rate recorded in July 2018 (11.14) percent and represents the first year on year rise in headline inflation following eighteenth consecutive disinflation in headline inflation.

It is true that the Nigerian debt stock has been rising for the past three years, however, the government has been raising debt instruments to mitigate against the rising cost of borrowing, such as the introduction of the Debt Management Strategy (2016-2019).

According to the Debt Office, the three-year strategy, which was first introduced under the tenure of former DMO DG Dr Abraham Nwankwo, is intended to keep money in the hands of private investors to spearhead a private sector driven economy.

Other objectives of the strategy, according to the Debt Office, are to free up space in the domestic market for other borrowers and achieve a more sustainable debt portfolio mix of 60 per cent domestic and 40 per cent external.

The DMO said the three-year strategy has the target of rebalancing the country’s debt portfolio for external to domestic debt to 40:60 respectively.

As at last year, Nigeria’s domestic debts- which have double digit yields, made up 78% of the country’s debt profile based on 2017 analysis. Foreign debts constituted just 22%.

In May, the IMF predicted that the Nigerian economy would grow by an average of 3.4 per cent in 2018, from 2.8 per cent in 2017.

The CBN, on the other hand, continues to strengthen the country’s foreign exchange market weekly, majorly to maintain liquidity and stability, culminating with the recent currency swap deal with China.

According to analysts, Nigeria has relied much on public debt to finance its development projects in the past two decades which put its debt profile so high. Thus, before the debt write-off by the Paris-club and London club the result shows that the impact on Nigeria economy was much compared to present time. Though, the exit from the Paris club and London club reduced Nigeria’s external debt, whereas the domestic debt and the effect created by the huge debt before the debt write-off still have lag effect on the economy.

Economic observers believe the country should not borrow at all for now, as there is need for the government to ensure that they speed up diversification of the economy and move towards self-sufficiency.