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Concerns as nation’s debts touch N35.5trn

The country’s total debt stock moved a notch higher from N33.107 trillion as of March, 2021 to N35.5 trillion on June 30, 2021, even as the debt size has elicited varied reactions from experts, ABDULWAHAB ISA reports

For the umpteenth time, Nigeria’s debt stock portfolio debate returned to the public space in the preceding week. Discussion on debt is often triggered whenever a debt request notice emanates from the executive to the legislative arm, or when a new Appropriation Act surfaces with a humongous amount provided as deficit financing. The current administration has forwarded more debt approval requests to the National Assembly than all the previous administrations. Confronted with low revenue earnings, the government frequently resorts to borrowings from domestic and international windows to execute capital project contained in the Appropriation Act.

Fresh loan request

Faced with the determination to fund key projects listed in the budget, President Muhammadu Buhari, last week, sought the approval of the National Assembly to borrow another $4.05 billion and €710 million from bilateral and multilateral organisations to fund the deficit in the 2021 budget.

The president, in addition, had asked the lawmakers to approve grant components of $125 million. In a letter to the Senate, President Buhari said the loan request was an addendum to the 2018- 2020 borrowing plan. The request merely formalises it.

It was already captured in the borrowing plan as reflected in the Medium-Term Expenditure Framework (MTEF). The funds’ request is to meet “emerging needs” of some “critical projects,” Buhari explained in a letter addressed to the leadership of both chambers of the National Assembly. “The projects listed in the external borrowing plan are to be financed through sovereign loans from the World Bank, French Development Agency, EXIM Bank and IFAD in the total sum of $4,054,476,863 and €710 million and grant components of $125 million,” he noted.

Focus of new loans

The president said the loans, when obtained, would stimulate the economy and create employment. A senior spokespersons for the president, Mallam Garba Shehu, in a statement, clarified that the World Bank was expected to fi-nance seven projects across different sectors, such as the educational system, with a $125 million grant for “better education services for all.” The grant, the presidency said, is expected to increase equitable access for out-of-school children and improve literacy in focus states and will strengthen accountability for results in basic education in Katsina, Oyo and Adamawa states. Credit Suisse will finance major industrialisation projects and micro, small and medium enterprise (MSME) schemes, while SINOSURE will provide funds for the provision of 17MW hybrid solar power infrastructure for the national assembly complex. The Presidency further said a loan facility by the German government-owned development bank (KfW IPEX-Bank) will be spent on the construction of the standard gauge rail linking Nigeria with Niger Republic. The China-Africa Development Fund is expected to provide a loan facility of $325 million for the establishment of three power and renewable energy projects. These include a solar cells production facility in two phases, electric power transformer production in three phases and a high voltage testing facility.

Nigeria’s total debt at glance

Nigeria’s debt agency – Debt Management Office (DMO) put the country’s total debt stock as of June 30, 2021, at N35.5 trillion. The newest debt figure is higher to March, 2021 figure of N33.107 trillion. Making detailed presentation about the country’s debt stock last week, including what is owe to domestic component, Director- General of the agency, Ms. Patience Oniha, in addition, offered insight to debt servicing. According to DMO, Nigeria government committed N612.712 billion to service its domestic debt component in the first quarter of 2021. The sum of N219. 289 billion was paid in January, while N123.093 billion and N 270.328 billion were paid in February and March. Of the N35.5 trillion total debt stock, the domestic debt component is N20.636 trillion (62.33 per cent), while external debt is N12.470 trillion (37.67 per cent).

The Federal Government’s debt stock is put at N16.513 trillion, while the 36 states and the FCT owe N4.122 trillion. The agency noted that the debt stock also included the N940.220 billion Promissory Notes issued to settle the inherited arrears of the Federal Government to state governments, oil marketing companies, exporters and local contractors. “Compared to the total public debt stock of N32.916 trillion as at December 31, 2020, the increase in the debt stock was marginal at 0.58 per cent,” DMO said. “Further analysis of the public debt stock shows that the increase was in the domestic debt stock, which grew by 2.11 per cent from N20.21 trillion in December 2020 to N20.637 trillion as at March 31, 2021. It includes FGN Bonds, Nigerian Treasury Bills, Nigerian Treasury Bonds Sukuk and Green Bonds used to finance infrastructure and other capital projects, as well as, the N940.220 billion promissory notes. The DMO said that the external debt stock declined from $33.348 billion as at December 31, 2020 to $32.86 billion (N12.470 trillion) due to the redemption by Nigeria of the $500 million Eurobond in January 2021. The Federal Government’s debt stock of N16.513 trillion showed that FGN Bonds was N12.465 trillion, which constituted 75. 48 per cent of its total debt. Treasury Bills stood at N2.604 trillion representing 15.77 per cent, while Nigerian Treasury Bonds was N100 billion or 0. 61 per cent. FGN Savings Bond was N14.394 billion which represented 0.09 per cent. FGN Sukuk was N 362. 557 billion, representing 2.20 per cent, while Green Bond was N25.690 billion or 0.16 per cent. Promissory notes 940,220,353,590.00, which accounted for 5. 69 per cent. The promissory notes are noninterest notes issued to settle the arrears of the Federal Government to local contractors. The agency went further to inform the public about a planned return to the international capital market to raise between $3 billion to $6.2 billion Eurobond for financing part of capital projects captured in 2021 proportionate. Reactions trail borrowing Expectedly, a fresh request for borrowing has ignited a chain of reactions. An APC Senator, Ali Ndume, faulted Buhari’s borrowing plan, especially the Senate’s speedy approvals. “I’m not an expert in debt analysis. Honestly, the rate of our borrowing is increasing and is worrisome. But it is not the borrowing that is the problem as I always say, it is what you do with what you borrow. “The rate of borrowings by the Federal Government is increasing and worrisome,” Ndume said.

consideration and approval.

The president, who is also of APC, in a letter on Tuesday, sought the approval of the Senate to borrow another $4 billion (4,054,476,863) and €710 million loan from bilateral and multilateral organisations to fund the deficit in the 2021 budget. While he said the loan request is an addendum to the 2018-2020 borrowing plan, he also asked the lawmakers to approve grant components of $125 million. He told the lawmakers that the need to borrow more funds was to meet “emerging needs” for some “critical projects.” Tuesday’s request generated criticisms from Nigerians, including the opposition party, PDP. While the party cautioned NASS against approving the request, saying it could set the country’s debt profile skyrocketing without a feasible repayment plan, the APC said the loans are for “the good of the country” and well-being of the citizenry. MD/CEO of SD&D Capital Management Limited, a financial expert, Mr. Idakolo Gabriel Gbolade, is of the view that constant borrowing by the Federal Government woukd affect government’s ability to meet its obligations locally. “The servicing of the existing loan repayments by government is already gulping over 60 per cent of government revenues. This new external borrowing will further strain the revenue accruing to the federation account without clear cut projections that the projects to be funded will generate enough revenue to repay the loans.” Gbolade further said: “So far, the average Nigerian is yet to feel the impact of government’s borrowings to fund infrastructure. More Nigerians migrate into the poverty zone daily.” He, therefore, urged the National Assembly to audit the borrowings in order to ascertain their impact on Nigerians.

Last line

If Nigeria’s borrowing is tied to capital development, it makes a huge sense, as it will spur investment and ultimately translate to growth. On the other hand, if Nigeria borrows for recurrent purposes, then it is a clear path to underdevelopment.

 

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