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REPORT | Nigeria Borrows N10 Trillion in 30 Months

With the recent domestic and international borrowing spree, Nigeria’s debt has increased by over N10 trillion since President Muhammadu Buhari took over the reins of power on 29 May 2015. The debt profile is now about N22 trillion or $73 billion.

The leap signifies an increase of over 80 per cent in less than three years. This is quite significant because by May 29, 2015, the nation’s debt profile stood at N12.06 trillion, while between 2015 and 2017, it went up to N22trillion.

Financial experts have warned that high debt stock could undermine the nation’s development as it did before the 2004 debt relief.

According to data from the Debt Management Office (DMO), total debt profile as of early June 2015 was approximately N12.06 trillion but Director General of the agency, Ms. Patience Oniha told members of the National Assembly recently that as of September 2017, the debt stock for both the federal and state governments had risen to over N20.373 trillion.

In addition to this total, the Federal Government floated the $3 billion Eurobond in November 2017; N10.69 billion Green Bond in December 2017 and another $2.5 billion Eurobond early this month, all totalling another N2 trillion.

Prior to the Paris Club debt relief in 2004, Nigeria’s overall debt stock was $46.2 billion with external debt standing at $35.9 billion while the stock of the domestic debt amounted to $10.3 billion resulting in a total of about US$46.2 billion.

But between 2010 and 2014, the nation’s debt profile rose by $18.40 billion (N3 trillion) according to the analysis of DMO going from $35.09 billion; to $41.55 billion in 2011; to $48.49 billion in 2012; $54.54 billion in 2013; and $53.49 billion in 2014.

At the 2017 World Bank/International Monetary Fund annual meetings in Washington DC, last October, both the World Bank and IMF raised the issue of Nigeria’s rising debt profile, warning of the dire consequences of this should there be a slump in the price of crude oil, Nigeria’s main foreign exchange earner.

But in her defence of the government’s strategy, Finance Minister, Kemi Adeosun, told financial journalists at the meetings in Washington that, “Nigeria’s debt-to-GDP ratio is one of the lowest. We are at 19 per cent, but most advanced countries have over 100 per cent.

“I am not saying we need to move to 100 per cent, but I am saying we need to tolerate a little more debt in the short-term to deliver the rails, the roads and power so as to generate economic activities, jobs, revenue, which would be used to pay back the debt.

“What we are trying to do is to create enough headroom to invest in capital projects that the country desperately needs. I do not think there is any Nigerian that will say we do not need to invest on power, do the roads, and that will not want us to fix 17 million housing deficits, build rails and they will generate economic activities and jobs.”

She added, “Why do we have to borrow? If you think back to the problem we face, our principal source of revenue plummeted by up to 85 per cent, so we had no choice.”

At 19 per cent, Nigeria’s debt to GDP is healthy but the real issue is the debt to revenue ratio, which is what actually determines the ability of the country to repay her debts. According to Mrs Gloria Joseph-Raji, a World Bank’ Senior Economist, Nigeria’s debt to revenue went up from 35 per cent in 2015 to 60 per cent in 2016. If without the new foreign debts Nigeria currently expends 66 per cent of her total revenue on debt servicing, leaving just 34 per cent for both capital and recurrent expenditure, what sense does it make to take more debts? What economic sense does it make to borrow more to offset existing debts?

However, the Bank for International Settlements Data regards the flurry of recent Eurobond issuance as adding to an already-record debt tally for sub-Saharan Africa, which has ballooned to over $200 billion from less than 30 billion in 2007.

Speaking with Reuters, a news agency, Kevin Daly, Asset Manager at Standard Life Aberdeen, said, “If you have a lot of issuance in a short period of time, that tells you something.

“Maybe these guys are realising that their borrowing costs are going to potentially go higher over the course of the year if we get a continued rise in Treasury yields and further rate hikes by the Fed.”

And according to both Finance Minister Kemi Adeosun and Oniha, Nigeria intends to lift the proportion of dollar debt to 40 percent from its current level of 27 percent, to replace expensive naira bonds with 10-year interest rates as high as 14 percent.

“Nigeria is focused on reducing the cost of our debt portfolio and ensuring we have the optimal mix between domestic and international debt,” Adeosun said.

“The proceeds of the dollar issuance … will be used to re-finance domestic debt, which is high-cost and short-term, with lower-cost international debt with a longer tenure.”

Oniha on her part told Saturday Tribune that the country’s debt management policy entails that 60 per cent of borrowing should be from the domestic market, that is, Treasury Bills, FGN Bonds, Savings Bonds and then Green Bonds, and then 40 per cent should be external.

“The reason for that strategy is that, just as you diversify your investment, you also diversify your sources of funding so you are not dependent on only one source.

“The percentage of our external debt before we went to the market in November 2017 was only 23 per cent of our total public debt.

“That was even an improvement when you compare it to 2008, 2009 where over 80 per cent of our total public debt was from the domestic market.”

Ironically, Oniha said Nigeria was borrowing more externally in order to ultimately reduce the burden of debt service, explaining that by 2016 and 2017, Nigeria was borrowing at rates as high as 17 and 18 per cent while the rate on Treasury Bills, which is a discounted instrument, got to about 18 per cent.

Describing the rates as high, the debt management boss said that was the rationale behind the government’s resort to borrowing internationally at anywhere between 6 and 7 per cent.

“If we pick the November $3billion euro bond we issued, the one for 10 years, the $1.5billon was at 6.5 per cent and the one for 30 years was 7.62 per cent.

“If you compare those to the domestic borrowing, you are making huge savings including even for the 30years.

“So for the 30 years, you are making a savings of up to 10 per cent per annual and that is huge. In terms of interest cost, which you can describe as debt service, going external reduces the growth of our debt service obligations.

“It also reduces the cost of borrowing. Then of course we were able to access longer term funds, which is what we need to build major roads, major bridges or airports.

“It is not five-year money you would use; it is long-term money for structures because structure-money is always long term because infrastructure can last several generations.”

On efforts by the Federal Government to stem down both domestic and foreign borrowings, Adeosun said, “The solution to borrowing in Nigeria is that we must pay tax. If you pay the taxes properly, there is no need to borrow. Of course, there is the responsibility on the part of government to be more responsible and efficient. We are really focusing on this. We are trying to find ways to cut cost.”

Nonetheless, there have been allegations, especially by the National Assembly that government has been diverting parts of the loans taken to projects other than those for which they were obtained.

Senate recently alleged a diversion of $600 million foreign loan meant to revive the power sector to remodelling of four airports across the country.

The said $600 million Euro bond from the Chinese government was meant for the rehabilitation of the power sector but $100 million of the said sum was said to have been used as counterpart funding for the remodelling of the airports in Lagos, Abuja, Kano and Port Harcourt.

Another investigation also revealed that about $4.8bn foreign loans obtained between 2015 and 2017 were on programmes and not projects for which they were obtained. Some of the loans include Economic Governance, Diversification and Competitiveness Support Programme (EGDCSP) getting allocation of $600m.

The programme was meant to create the fiscal space to facilitate a smooth implementation of the government’s budget, support fiscal and structural reforms, and improve the targeting of social sector spending to protect the most vulnerable segments of the population.

There was another $500m taken from the International Bank for Reconstruction and Development (IBRD) and $400m AfDB Fund for development finance institutions.

Yet again was $500m from the International Development Association (IDA) for the Saving One Million Lives, which is a scheme to expand access to essential primary health care services for women and children.

According to DMO, the Federal Government secured UA3.3m ($5.06m) and $200m for the Urban Water Sector Reform and Port Harcourt Water Supply and Sanitation projects, and $33.17m for the Ogun State Urban Water Supply Project, while the remaining $100m was for the Lagos Integrated Urban Development Project.



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Copyright 2018 SIGNAL. Permission to use portions of this article is granted provided appropriate credits are given to and other relevant sources.


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