The impression in a Vanguard Newspaper report that “Nigeria, Paris Club deal is in significant reversal, as debt grows 200%”, is misleadingly a negative report as this does not represent the true position of the country’s borrowing status.
The Vanguard Newspaper report with the above caption is a deliberate attempt to mislead the public with a sensational headline as the body of the story goes to confirm the true status of our debt portfolio: The 2 ratios Vanguard quoted in its report for the end of 2015: 2% for external and 13% for domestic-plus-external shows there is no reversal in the said deal as the growing borrowing had been corresponding to a growing GDP.
The Vanguard report fell short of comparing what the GDP in 2006 and 2015 was, respectively.
In 2005, Nigeria’s GDP was N14.6 trillion and Total Debt-to-GDP was 27.5 percent (pre-rebasing), and in 2013, the GDP was N80.22 trillion, with a Total Debt-to-GDP ratio of 22.84 percent (pre-rebasing), showing that there is nothing implicitly wrong in borrowing, provided the GDP outgrows the rate of public debt accumulation.
Evaluation of public debt and comparing change over time is not done by comparing absolute figures but by comparing ratios. This is the standard for all economies.
The impression that a country’s debt should not grow over time is grossly deceptive. Most macroeconomic variables grow over time as the economy itself grows (as measured by the Gross Domestic Product-GDP). It is wrong economics to compare the public debt over a span of ten years without relating it to the changes in GDP over the same span.
On the other hand, it could be recalled that after the exit from the Paris and London Club debts, the Debt Management Office designed a strategic imperative to develop the domestic debt market to achieve a number of benefits which include:
· To establish an alternative source of funding for Government to avoid compelling dependence on only external sources.
· To develop a balanced capital market: the existence of a developed equities segment of the capital market without a corresponding debt segment meant that the market was standing on one leg and such a market cannot be the basis for the development of a regional or continental financial hub. Thus, sovereign bond issuance based on sovereign domestic borrowing is in itself an objective worth pursuing to be able to develop a benchmark yield curve, which the private sector would need to rely upon to issue their own long-term debt instruments to raise funds to develop the real sector and infrastructure projects.
Even then, it is important to note that all domestic borrowings have been as appropriated by the National Assembly. This means that domestic borrowings have been in line with the provisions of the extant laws, through the annual budgetary process.
Opportunities Created for the Private Sector
Given the favourable market environment that has been created through the instrumentality of the DMO, some private sector entities have exploited this opportunity to raise needed capital from both within and off-shore.
· Between 2007 and 2013, more than 25 Corporates have accessed the domestic debt market to raise over N223 billion to fund various developmental projects. The domestic debt market was virtually non-existent before 2003, and was resuscitated through the strategic interventions and borrowing activities of the Government.
In the same vein, arising from the creation of a Sovereign Benchmark in the International Capital Market (ICM), four (4) Nigerian Corporates (financial institutions) have also taken due advantage to issue Eurobonds between January, 2011 and July, 2014, amounting to USD 3.4 billion.
International Recognitions For the Domestic Bond Market
In recognition of the modest achievements recorded by the Government, through its constructive interventions and purposeful borrowing activities, both in the domestic and external debt markets, some reputable international financial institutions have endorsed and commended the government’s public debt management initiatives, notable among these are:
· JP Morgan, which included FGN Bonds in its Emerging markets-Government Bond Index (EM-GBI) on October 1, 2012;
· Barclays Capital, which also included FGN Bonds in its Emerging Markets-Local Currency Bond Index (EM-LCBI), effective March 01, 2013; and,
· The International Finance Corporation (IFC), a member of the World Bank Group, in March 2013, also issued a Naira denominated debt instrument worth USD76 million in the domestic debt market, thereby establishing a benchmark for other international bond issuers to tap the growing Naira bond market. Hence, endorsing the creditable performance of the domestic debt market.
Similarly, at the external front, Nigeria’s USD1 billion Eurobond issued in July 2013, was recognized as the EMEA Finance 2013 best Sovereign Bond in Africa, out of a total of five (5) Sovereign Eurobonds issued by African countries in 2013. This award was in recognition of the high level of interest shown by foreign investors for the Offer and the fact that the Eurobond was issued at a relatively favourable coupon during a period of grave global market uncertainty.