FG, Analysts Differ on Rising Debt Profile

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Kunle  Aderinokun

Following  recent release of the Nigerian Domestic and Foreign Debt 2016 Report, the status of Nigeria’s public debt has continued to generate reactions from economic analysts and other stakeholders in the economy. Naturally,   the nation’s public debt profile is a subject of discourse since it affects the health of the economy and even its sovereignty.

The debt report, released last week by the National Bureau of Statistics (NBS), revealed that, as at December 31,  2016, the country’s  foreign and domestic debts stood at $11.41 billion and N14.02trillion respectively. While the reported current  foreign debt  rose by $692 million from $10.718 billion in December 31, 2015, from where it increased to $11.26 billion in the third quarter of 2016,  external debt in Nigeria averaged $6.92 from 2008 until 2016, reaching an all-time high of $11.41 billion  in the fourth quarter of 2016 and a record low of $3.63 in the first quarter of 2009.

A breakdown of the foreign debt showed that $7.99billion of the debt was multilateral, $198.25million was bilateral (AFD) and $3.22billion from the Exim Bank of China credited to the Federal Government of Nigeria (FGN).

Further analysis revealed that, total FGN debt accounted for 68.72 per cent of Nigeria’s total foreign debt while all states and the Federal Capital Territory (FCT) accounted for the remaining 31.28 per cent. Similarly, total FGN debt accounted for 78.89 per cent of Nigeria’s total domestic debt while all states and FCT accounted for the 21.11 per cent balance.

Concerns have continued to grow on the sustainability of the nation’s debt profile, especially in recent times, when the economy is facing challenges. More worrisome is the fact that a chunk of the nation’s earnings is usually  devoted to debt service. Nevertheless, the Debt Management Office (DMO) had variously risen stoutly in defence of the debt status.  

For instance, recently, the Director General of DMO, Dr. Abraham Nwankwo, argued that,  “in spite of the drastic drop in the country’s foreign exchange earnings, following the oil-price shock since mid-2014, the external debt liability hardly constitutes a source of vulnerability.”

Nwankwo, who noted that,  as at end-June  2016, external debt accounted for only 18.33 per cent of the country’s total debt stock of about N16 trillion (USD 61 billion) – compared to the optimal target of 40 per cent established in the country’s medium term Debt Management Strategy (2016-2019),” stated that, “the annual external debt service expenditure for the last 5 years was always less than 6.5 per cent of the total public debt service outlay.” According to him, “the external debt service accounted for an insignificant proportion of the total public debt service expenditure.”

Besides, Nwankwo had also at various times argued that Nigeria had one of lowest debt to GDP ratios in the world.  He put the nation’s Debt-to-GDP ratio at 13 per cent as December 31, 2015, whereas the threshold is  18 per cent. He believed “Nigeria’s low debt to Gross Domestic Product (GDP) ratio means the country can borrow more to fund budget, infrastructure and other essential projects that will stimulate the economy and create jobs for the citizenry.”

However, the attention of analysts has been drawn to new debt report, which some of them have argued, is not sustainable. Some also raised concerns on the value the economy is getting from the series of  borrowings by the federal government.  

In his view, Chief Executive Officer, Global Analytics Consulting, Tope Fasua,  contended that, “Nigeria’s Debt to GDP ratio may be relatively low compared with its peers but it is obvious that the Debt to Revenue ratio is totally unsustainable at almost 70 per cent.”

According to him, “It is a trite fact that no one pays debts with their GDP but with their cash flows. Nigeria’s cash flow is still volatile and defined majorly by crude oil proceeds. As much as we seek to diversify we should keep a keen eye on the risk management aspect.” Arguing further, Fasua stated: “Sometimes one’s projections may not come through and when the creditors come calling, we may be back in the embarrassing situation that we were throughout the 1980s and 1990s.”

The chief executive therefore urged caution, saying “I haven’t seen the beginnings of Fiscal prudence at state and federal government levels. Government appointees still max out on their entitlements even in a recession.” “And with all the frauds being revealed, it is evident that the lifeblood of the country was sucked mercilessly by a few and that we were deprived of the benefit of that lifeblood. People say this still continues. I would urge that we intensify efforts in getting our looted monies back. Perhaps we will not have to borrow from everyone and everywhere and jeopardise the future of our children and unborn children,” he added. 

Similarly, Director, Union Capital Ltd, Egie Akpata, who pointed out that, the updated public debt figure would be higher that the December 2016 reported, feared that, “the very substantial foreign borrowing being pursued by the Federal Government will eventually be a problem as was the case from the 1980s till around 2003.”

Noting that,  “on the short term, the cost of servicing foreign debts looks small, Akpata, however, contended that, “over time, guaranteed Naira devaluation ensures that both the cost of service and the size of the liability would be a lot worse than borrowing in local currency despite the much higher local interest rates.”

He suggested that, “Rather than the FG borrowing to fund a number of projects like rail and road, well capitalised and competent foreign and local firms should be given concessions to fund these projects. Any debt incurred will be on the books of these private investors, not on the Nigerian people.”

“The total local debt quoted at around N14 trillion shows N11tr to the FGN. The DMO shows that the cost of servicing that N11 trillion was N1.22trillion last year. This was paid by an FGN whose actual revenue was under N2trillion. What is worrying about the debt is not the total magnitude, but the fact that the FGN is spending majority of its revenue on debt service suggesting that it has borrowed beyond its means.

“I would expect these debts to grow very rapidly over the next few years as the political resistance to massive borrowing seems to be non-existent. Given the history of FGN borrowing, it still remains to be seen whether the new debts will provide good value for money and stimulate the FGN revenue that will be used to pay them off,” Akpata observed. To the CEO, Nigeria Competitiveness Council of Nigeria (NCCN), Mathias Chika Mordi, there are three causes of concern with respect to the debt.

According to him,  “The first is the onerous and worsening burden it imposes on government by constricting fiscal space. Debt service ratio (debt service to government revenue not the less applicable ratios bandied around) is already high and crowding out funding for critical investment in areas that are necessary for economic growth.”

Mordi added that, “secondly, continued channelling of debt into non-productive and non-capacity building areas. If the debt is funnelled into infrastructure and public investments, then the emanating economic growth will ease the debt burden.”

 “Finally, Government continues to expand spending  (5 per cent increase in recurrent expenditure for 2017 budget) funded by deficit financing which is inflationary and not allocated/disbursed to targeted areas for growth stimulation,” he also said.