The reliance of the federal and state
governments on borrowings to finance their activities is not ending soon
as the two tiers of government have taken more loans in the past two
years, EVEREST AMAEFULE writes
The Federal Government under
President Muhammadu Buhari and the 36 states of the federation as well
as the Federal Capital Territory have borrowed N7.51tn in the last two
years, statistics have revealed.
As of June 30, 2015, just a
month after the present crop of leaders took over the leadership of the
country, Nigeria’s total debt stood at N12.12tn.
However, as of
June 2017, the nation’s total debt had climbed to N19.63tn, according to
the latest debt statistics obtained from the Debt Management Office.
The
debt stock data released by the DMO revealed that the total public debt
stock (external and domestic debt stock of the Federal Government and
sub-nationals) as of the end of June was N19.63tn (about $64.19bn at
N305.9/$1), made up of external debt stock of N4.6tn (about $15.05bn)
and domestic debt stock of N15.03tn (about $49.15bn).
The DMO
said in a statement posted on its portal on Sunday, “The domestic debt
stock of the Federal Government and sub-nationals accounted for 76.56
per cent of the total public debt stock, while their external debt stock
accounted for 23.44 per cent.
“Furthermore, the total public
debt stock increased by 2.5 per cent from N19.16tn (about $62.54bn) to
N19.64tn (about $64.19bn), during the period under review.
“The
total external public debt stock of the Federal Government and
sub-nationals increased by 8.98 per cent from $13.81bn in March 2017 to
$15.05bn in June 2017, while the domestic debt stock of the Federal
Government and the sub-nationals increased by 0.67 per cent from
N14.93tn in March 2017 to N15.03tn in June 2017.”
However, an
analysis of the debt statistics from the May 29, 2015, when the current
leaders took over the reins of power, to June 30, 2017, showed that the
country’s total debt had risen from N12.12tn to N19.63tn.
This means that the country’s debt rose by N7.51tn or 61.96 per cent within a period of two years.
As
of June 2015, the domestic debt of the Federal Government stood at
N8.39tn. Detailed breakdown of the domestic component of the nation’s
total debt as of June 30 was not available as of the time of going to
press on Sunday.
However, the Federal Government’s domestic debt
stood at N11.97tn, while the domestic debt component of the states stood
at N2.96tn as of March 31, 2017.
The external debt balance of
both the federal and state governments stood at $10.32bn as of June 2015
compared to the $15.05bn recorded as of the end of June this year. This
means that within the period, the country’s external debt portfolio had
risen by $4.73bn or 45.83 per cent.
The increasing proportion of
the foreign debt component reflects a new debt management strategy
released by the DMO recently. It also reflects a strategy to reduce high
interest payment occasioned by much dependence of domestic debts.
According
to the DMO, the country’s new debt management strategy entails
balancing the sources of debt to ensure that more resources are borrowed
from external sources where the interest rate is seen as lower than
interest rates on borrowings from domestic sources.
The Debt
Management Strategy 2016-2019 targets the rebalancing of the debt
portfolio from its composition of 84:16 (domestic to foreign) to 60:40
by the end of December 2019 (domestic to foreign).
“It supports
the use of more external finance for funding capital projects, in line
with the focus of the present administration on speeding up
infrastructural development in the country, by substituting the
relatively expensive domestic borrowing in favour of cheaper external
financing,” the DMO said.
Our correspondent reported that the
Federal Government spent a total of N1.88tn on domestic debt servicing
between 2014 and 2015.
With foreign debt now accounting for 23.44
per cent of the total indebtedness, the Federal Government may achieve
the goal of increasing the proportion it to 40 per cent by 2019.
In
line with this strategy, the Federal Government recently unveiled a
plan to borrow $3bn from foreign sources to refinance some maturing
local debts.
The DMO had said that refinancing Federal
Government’s maturing $3bn local debts would not only crash the rate of
domestic borrowing, but also allow some borrowing space to the private
sector.
It stated that borrowing from foreign sources to
refinance the local debts would also allow the government time to repay
the loans when the economy must have fully recovered from recession and
diversified.
The DMO said the move was informed by the lower
dollar interest rates in the international capital market, adding that
Nigeria was expected to borrow at a rate not higher than six per cent,
while issuances of the NTBs in the domestic market were at rates as high
as 18.53 per cent.
According to the office, external borrowing
is cheaper by about 12 points and will result in substantial cost
savings for the Federal Government in debt service costs.
The DMO
had said, “Besides reducing the cost of borrowing, the $3bn is expected
to be raised for a tenor of up to 15 years, which is very long compared
to the maximum tenor of 364 days for NTBs.
“This move will
effectively extend the tenor of the government’s debt portfolio. The
longer tenor enables the government to repay at a time when the economy
would be stronger and more diversified to meet the obligations.”
It
added, “The reduction in the level of the FGN’s borrowing from the
domestic market will result in a reduction in domestic interest rates
and free up borrowing space in the economy, particularly for private
sector borrowers.
“The $3bn from the refinancing will also
represent an injection of foreign exchange into the economy, which will
boost the country’s external reserves.”
The DMO said that the
approval of the National Assembly would be obtained for the proposed
refinancing before implementation in line with the Debt Management
Office Act, 2003
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