In one year of the administration of President Goodluck Jonathan, Nigeria’s debt profile has risen by N1.21tn, SATURDAY PUNCH investigations have shown.
Statistics obtained from the Debt Management Office show that the country’s debt profile rose from $36.45bn (about N5.68tn) in March 2011 to $44.28bn (N6.88tn) as of March 2012.
The domestic debt component stood at $38.37bn (or N5.97tn), while the external debt stood at $5.91bn (or N919.44bn) as of March 31, 2012.
Details of the external debt balance show that multilateral financial institutions account for 83.28 per cent of the country’s foreign debt.
The International Bank for Reconstruction and Development, a member of the World Bank Group, accounts for $6.31m, while another member of the group, the International Development Association, accounts for $4.29bn.
The International Fund for Agricultural Development, also a World Bank group member, contributes $70.25m to the nation’s external debt balance.
The African Development Bank accounts for $43.55m, while the African Development Fund contributes $387.23m to the debt burden.
Non-Paris debts sources are 8.26 per cent of the nation’s external debt. These include the European Development Fund, $110.08m: and the Islamic Development Fund, $14.56m.
Bilateral loans account for $433.84m, while commercial loans contribute $54.63m.
The $500m, which Nigeria borrowed from the International Capital Market in 2011, accounts for the remaining 8.26 per cent of the external debt.
Details of the domestic debts, on the other hand, show that FGN bonds account for N3.67tn or 61.44 per cent of the money borrowed by the Federal Government from internal sources.
Nigerian Treasury Bills account for N1.95tn or 32.63 per cent, while Treasury Bonds account for N353.73m or 5.93 per cent.
As of March 31, 2011, the nation’s external debt stood at $5.23bn, while the domestic debt stood at N4.87tn.
This means that within one year, the external debt stock rose by 13 per cent, while the domestic debt stock rose by 22.59 per cent.
Most of the domestic debts were not tied to any specific projects, but were raised to finance budget deficit.
An economist and Head of Research and Strategy at BGL Securities Ltd., Mr. Olufemi Ademola, has attributed the increase in domestic debts to a shortfall in revenue and the controversial oil subsidy expenditure.
What the Federal Government has done over the past few years was to show foreign debts the exit door and open the door widely for domestic debts. That, however, may have been put on the reverse gear with the most recent developments.
Minister of Finance, Dr. Ngozi Okonjo-Iweala, has not hidden her preference for foreign borrowing.
This means that with the Federal Government’s active performance in the local debt market, lenders would always prefer to lend to the government to the detriment of the private sector operators that also need money to develop their business.
Although Okonjo-Iweala championed the nation’s exit from foreign debt hole between 2004 and 2006, since she resumed in government as the Coordinating Minister for the Economy in 2011, the Federal Government has become more active in the foreign debt market.
The Federal Government had recently presented to the National Assembly a plan to borrow $8bn from external sources for infrastructure development.
The plan met appreciable opposition from some members of the National Assembly.
Had the government gone ahead with the $8bn loan, the move would have upped the Federal Government’s foreign debt portfolio to $13.91bn.
While presenting the 2012 budget proposal to the National Assembly, President Goodluck Jonathan had lamented that the domestic debt had been growing at an alarming rate in recent years. The clearest evidence of this is that in 2012, the Federal Government earmarked N560bn for debt servicing.
The President had spoken of curtailing domestic debt, but he gave room for the government to accumulate more debt with a caveat that the debts should not go beyond 30 per cent of Gross Domestic Debt.
At the moment, the debt to GDP ratio is slightly less than 20 per cent. With a latitude of 30 per cent debt to the GDP ratio, the government can add up to 50 per cent of the current debt level.
In a telephone interview, the President of the Campaign for Democracy, Dr. Joe Okei-Odumakin, said the increasing indebtedness was a sign that the nation’s resources were being mismanaged and that portended a great danger for the economy.
Ademola, on the other hand, said, “You are aware that the subsidy on petrol rose from less than N500bn in the budget to more than N2tn. The finance minister has also come out to say that the nation lost 20 per cent revenue to oil theft.
“Given these losses in revenues, what the Federal Government had to do was to resort to the local debt market. Statistically, we are still okay. That is when you look at the debt to Gross Domestic Product ratio.
“However, generally, this is not good. It means that national debt servicing will continue to grow. The government will continue to pay higher for debt servicing. This will reduce the money available to be spent on other things.
“It also means that the interest rate will continue to grow. The average businessman will not be able to borrow at a good rate.”
Overall, he said, “increasing interest rate will affect the profit that businessmen can make in the country.”
The Managing Director, Lambeth Trust Investment Ltd., Mr. David Adonri, said the escalating debt finance by the Federal Government had crowded out the real sector of the economy, and the equities market.
“The implication is that the capital being formed by the way of debt is what the government is using to finance consumption, and not investment. It’s contributing next to nothing to the economy. It’s an action that is destabilising the economy by increasing interest rate and inflation rate. By increasing these two rates, the government is causing more problems to the economy,” he added.
The Managing Director, Financial Derivatives Company Ltd., Mr. Bismark Rewane, pointed out that the figure could not be looked at in isolation.
“You don’t just look at the debt figure. You need to consider a lot of things. For instance, the 20 per cent debt to GDP ratio is low considering the limit. The limit is 30 per cent,” he added.