Lawmakers, analysts urge caution over mounting national debts POSTED ON WEDNESDAY, AUGUST 14TH, 2013 David-Marka-and-FasholaBy Efe Ebelo/Abuja There has been public outcry over Nigeria’s external and domestic debt profile, which many argue is taking the nation back to the days before the 2006 Paris Club debt forgiveness era. Nigerians have often voiced their dismay with the nation’s debt profile, expressing fears that government is piling up debts that future generations would find difficult to repay. Some even argue that the whole scenario is even more worrisome, given the little or nothing on ground to show for the mounting debts. Even then, the argument continues, the nation has had to contend with the stark reality of repaying these debts. Director General of Debt Management Office Nigeria, Dr. Abraham Nwankwo had in June put the nation’s domestic and external debt at N6.49 trillion and $6.67 billion respectively as of March, translating to a total debt to GDP level of 19.3 per cent. A report, quoting the Debt Management Office (DMO), recently reported that the nation’s total debt profile had risen to $50.91 billion or N7.93 trillion, with an external component of $6.72 billion or N1.08 trillion and domestic of N6.85 trillion or $43.99 billion. Provisional data from the DMO indicates that N121.69 billion was released for domestic debt servicing in the first quarter 2013, while the actual domestic debt payment was N191.25 billion. Breakdown According to information contained in the first quarter 2013 budget implementation report by the Budget Office of the Federation, the actual external debt service payment in the first quarter of the year amounted to $94.23 million, a breakdown which indicates that $47.86 million (or 50.79 per cent) went to multilateral creditors; $19.48 million (or 20.67 per cent) to Non-Paris Bilateral Creditors; and $26.9 million (or 228.55 per cent) to Non-Paris Commercial Creditors. According to the report, the sum of N55.41 billion (or 40.79 per cent) difference between the quarterly budgeted estimate of N135.84 billion for domestic debt services and the actual domestic debt services was mainly due to additional issues of FGN Bonds above the amount projected to be issued as a result of changes in the issuance calendar and the rising cost of rolling over Non Tariff Barriers (NTBs). The information showed that as at March 31, 2013, the Federal Government’s domestic debt stock stood at N6, 493.32 billion, a decrease of N44.22 billion (or 0.68 per cent) below the N6, 537.54 billion recorded in the fourth quarter of 2012. “The 2013 first quarter debt figure was also N526.55 billion (or 8.82 per cent) above the N5, 966.77 billion reported in the same period of 2012. “A breakdown of the domestic debt stock as at March 31, revealed that N3,820.55 billion (or 58.84 per cent) is for FGN Bonds, N2,338.2 billion (or 36.01 per cent) is for Nigeria Treasury Bills (NTBs) and N334.56 billion (or 5.15 per cent) is for Treasury Bonds”. the document stated. Nigeria’s external debt stock (mostly low interest funds from multilateral financial institutions) as at end of 2013 first quarter, stood at $6,670.72 million, indicating an increase of $143.65 million (or 2.2 per cent) and $677.18 million (or 11.3 per cent) over the $6,527.07 million and US$5,993.54 million recorded in the fourth quarter and first quarters of 2012 respectively. The increase the Federal Government explained was due mainly to the increases in multilateral and bilateral debt drawdown. A breakdown of the external debt stock in the first quarter of 2013 showed that Multilateral Debts amounted to US$5,349.37 million (80.19 per cent), Non-Paris Club Bilateral and Commercial Debts amounted to US$821.35 million (or 12.31 per cent) while ICM (Euro- Bond) accounted for the balance of US$500million (or 7.5 per cent). Light burden but… In its July 30, 2013 edition of “Good morning Nigeria,” a daily commentary on the nation’s economy, analysts at FBN Capital Limited, reiterated an earlier statement that although the federal government’s total debt as at March of “just 19.3 per cent (to GDP) is a light burden for a sovereign by any international comparison, the rising cost of domestic debt service lies behind the new debt strategy of the DMO.” The report however warned albeit subtly, that “the DMO data capture just the debt of the sovereign so we have to make some additions for total public obligations. These include the state and local governments, whose bank borrowings amounted to N690 billion in April 2013, and public agencies such as the NNPC. According to the report anchored by UK-based Gregory Kronsten, and Olubunmi Asaolu, an analyst at the Lagos office, “we also have to include AMCON (Asset Management Corporation of Nigeria), whose sole indebtedness will total N3.6 trillion in refinanced bonds issued to the CBN once it has settled its other obligations by October 2014. “We estimate the total government burden at no more than 30 per cent of substantially understated nominal GDP. “FGN bond issuance should slow in the second half of 2013 when we consider that the 2013 budget projects net domestic borrowing for the full year of N577 billion and that the DMO has raised N576 billion (gross) from sales in the first seven months.” Palpable fears Only recently a member of the Senate committee on Local and Foreign Debts, Senator Zainab Kure expressed fears that these debts may constitute problems for the future generations as they may find it very difficult to repay thereby leading to an economic problem. Some of these fears were allayed by Nwankwo when he explained that if the funds are spent judiciously in infrastructures like roads, the future generations would also enjoy them and it would be funds judiciously spent. Also, Senator Olugbenga Obadara expressed worries over the country’s debt profile and the pace at which state governors are rushing to the bond market, saying that it takes a lot of guts to get Nigeria into debt and also to get Nigeria out of Debt. It is very disheartening, he said, the way states were running to the banks to obtain loan when according to him they have little intelligence on how to fund such debts, calling for setting of stringent conditions before states are allowed to access the bond market for capital, because the debts would be inherited by future generations. “If you do not have the resources, plan ahead. Many of them went into the elections thinking that there was so much money, but when they got there, they found out that it was not so and started running from pillar to post to raise funds,” he said. Fear not But the DMO insists there is no need for Nigerians to lose sleep over the country’s current debt profile, as it remains sustainable, while government is careful not to go near the threshold for nations in its peer group. Nwankwo said although the threshold for the countries in Nigeria’s peer group in terms of debt to GDP ratio has been changed from 40 to 56 per cent, the government is still working at a threshold of 30. He said the Nigeria’s total debt as at March translated to a total debt to GDP level of 19.3 per cent. “Even when it was 40, Nigeria limited itself to using 30 as its own threshold, not that it must reach 30 instead of using 40. Now that it has been raised by the International standard from 40 to 56, we are still restraining ourselves as if 30 is our own threshold. “It is not that we are aiming that we must reach 30, but we still use it as our own threshold, so that shows you how conservative the present administration is as far as public debt management is concerned in terms of borrowing. Nwankwo said government is not interested in borrowing for its sake but to give the nation diversified revue sources, that the tax base increase, while those who produce and earn revenue are able to pay taxes so that the pressure to borrow will be less. He however said that sustainability in the Nigerian situation has to be related to the peculiarities of its own economy and that is why the DMO continues to emphasizes that it is not only statistical debt sustainability, but government is laying emphasis on value for money. “Government is laying emphasis that ‘yes’, even if there is a particular threshold, for example debt to GDP ratio that is the standard for countries in our peer group, because we appreciate the peculiarities of the Nigerian economy and appreciate that our foreign exchange earnings is concentrated on one source, oil and gas, we appreciate that oil and gas is subject to frequent volatilities in international capital market, we always decide to be conservative. “Nigeria does not aim at that threshold set for its peer group, rather, it attempts always to have a threshold which is much lower than the one set for countries in our peer group” he stated. Threshold increase The DG explained that Nigeria’s threshold was increased because it had moved from lower income country to a middle low income country. “So Nigeria in terms of our GDP, in terms of our per capita income, in terms of our overall performance, our economy is maturing and international experts globally are appreciating that Nigeria is emerging, is moving forward. “It is not a strictly under developed economy, it is trying to move forward. So in terms of income level, in terms of economic maturity, maturity of our bond markets, in terms of having the right institutions and structures. The reforms that have been going on, the Transformation Agenda, is ensuring that Nigeria is moving from a very low level to a relatively high level and to that extent, we have moved from a group that is considered to be higher in terms of economic performance”. He said that is why the present administration is making sure that these progress that it is claimed to be registering is shown in the welfare of the people in employment generation, in poverty reduction and welfare. “This is because when you generate more employment, you are reducing poverty because more people will earn income and be able to solve their needs and those of their friend and relations. So government is laying emphasis that yes we seem to be making progress in terms of microeconomic stability, in terms of strong institutions in terms of output, but let us make sure that we organize this growth in such a way that there is maximum inclusion, let more Nigerians be part of this progress that we are making. “And that is why there is a lot of emphasis for example on power because government appreciates that hopefully in the next two to three years when the power situation would have been obviously changed for the better in terms of the quantum and the stability of power supply. The hair dresser, the barber among others will be able to earn money and take care of their needs” he added. Checking the State In a bid to curtail the penchant by state governments for borrowing, Nwankwo said according to prescribed guidelines, for any state to be allowed to borrow, its total debt service outlet on a monthly basis must not be above 40 per cent of its Federation Allocation Accounts Committee, FAAC allocation for the past 12 months. “No state will be allowed to borrow if its total debt service outlet on a monthly basis is above 40 per cent of its FAAC allocation for the past 12 months. This is bearing in mind the fact that every state should have Internally Generated Revenue, IGR and so should not depend fully on FAAC. There is no state in Nigeria that should not be viable without oil. “So once your debt service each month falls within the range and you have IGR as a fall back, then you may wish to borrow to carry out some infrastructural developments” he said. The DG however said that there are some states who meet the criteria and wish to borrow but the DMO advised them against such but told them that seeking alternative routes of funding might be best for them. “Apart from the bond market, most of the borrowings we do now are from very concessional windows of the World Bank, or the African Development Bank, ADB with a maximum interest of 1.25 per cent per annum. Nwankwo also wants Nigerians to relate the nation’s debt stock to the Gross Domestic Product and not in isolation, as such may be misleading. He said Nigerians are right to say that public debt stock is rising as the office is encouraged by the interest generated so far among the public and stakeholders but however argued that in public debt management, variables are not rated in isolation, but one to another. According to him “Yes, the debt stock is rising and so also is the country’s Gross Domestic Product (GDP), and we try to emphasis that in public debt management as in most other aspects of business whether it is public business of private business, you don’t relate variables in isolation. For example, in public debt management, we relate the debt stock to the GDP or to revenue. We also relate debt service to GDP, we relate debt service to revenue and we relate external debt service to export earnings. “All these go together, so in managing businesses, whether public business or private business, you deal with ratios. For example, the Chief Financial Officer of a private company does not need to go to the board to tell them their revenue has risen, he would have said next to nothing. Or to tell them that the money they borrowed from banks has risen, he would have said next to nothing.
Posted on: Wed, 14 Aug 2013 17:57:08 +0000
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