Financial Experts Allay Fears over Nigeria’s Rising Debt Stock


By Goddy Egene

Some financial experts have said Nigeria is in a very comfortable zone to borrow more despite the jump in the country’s debt stock to N16.3trillion as at June 30, 2016.

The Debt Management Office (DMO) data, which showed an increase of N4trillion in the debt stocks within one year, has expressed doubts over the ability of the federal government to raise more debt to finance the 2016 budget.

However, financial analysts at FBN Quest said in spite of the rise in the debt stock, the country’s debt to the gross domestic product (GDP) is still favourable for Nigeria, compared to other of its peers.

According to the analysts, the latest report from the DMO shows FGN debt at end-June at N13.79 trillion (then $55.6 billion), equivalent to 14.6 per cent of 2015 GDP.

“This compares with N10.95 trillion ($48.7 billion) at end-December, representing 11.6 per cent. The sizeable increase of N2.84 trillion in just six months is divided between N1.76 trillion domestic, reflecting the acceleration in debt issuance, and N1.08 trillion external, driven largely by the devaluation,” they said.

They explained that the devaluation has had the result of pushing the domestic/external mix of the FGN’s debt a little towards the target of 60/40 in the DMO’s medium-term strategy. The ratio stood at 77/23 in June, adding the intended route to the target, of course, was via higher issuance in foreign currency (than local) with stable exchange rates.

“The debt stock ratios quoted cover federal government, rather than total public debt. The latter measure would have to include the naira borrowings of state governments (N2.50 trillion according to the DMO as at end-December), the obligations of Asset Management Corporation of Nigeria (AMCON), the Nigerian National Petroleum Corporation (NNPC) and other agencies, and arrears due to contractors. The ratio under this fullest definition could approach 25 per cent of GDP, which would still compare favourably with most emerging markets,” they declared.

FBN Quest added that this (debt ratio) is one of the positives underpinning Nigeria’s sovereign credit ratings (B+ from Fitch and the equivalent from Moody’s, and B from S&P).

 The rise in debt is not necessarily due to more borrowings, but due to the weakness of the naira against the dollar. In fact, the debt, in dollar terms, has declined from $65.43billion in 2015 to $61.45 billion in 2016, The Cable reported.

As at the end of 2015, Nigeria’s debt, in dollar terms, stood at 13.02 percent of the country’s gross domestic product (GDP). In 2016, however, the debt-to-GDP ratio has risen to 16.83 percent, based on 2015 GDP figures.

A rising debt profile may not be a problem if the economy produces enough to service existing loans as seen in the United States and Japan, where debt often equals GDP.

 A development economist, Mr. Odlim Enwegbara has said before now that Nigeria’s debt to GDP ratio is very comfortable, saying,  “with Nigeria at 17 per cent, the country has the opportunity to raise funds that are projects specific to fast-track the infrastructural development of the nation.”