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Under President Goodluck Jonathan, the Federal
Government has borrowed a total of N2.57tn.
Thus, the Federal Government’s debt profile rose
from N4.18tn as of June 30, 2010 to N6.75tn as of June 30, 2012.
Jonathan was sworn in as Nigeria’s Acting President
on February 10, 2010 following the death of President Umaru Yar’Adua and was
later sworn in as the elected president on May 29, 2011.
Records obtained from the Debt Management Office
showed that four months after Jonathan became Acting President, the total debt
profile stood at N4.18tn (as at June 30, 2010).
However, by June 30, 2012; the debt profile had
ballooned to N6.75tn.
This shows that within a period of 24 months or
two years, the Federal Government debt profile rose by 61.48 per cent.
Analysis of the debt increment between June 30,
2010 and June 30, 2012 shows that the Federal Government borrowed an average of
N107.08bn every month for 24 months or a total of N1.285tn per annum.
If the increment in debt profile is
subjected to daily analysis, the Federal Government borrowed N3.52bn every day
for a period of two years.
This debt profile is exclusive of the nation’s
total debt portfolio as it is more difficult to determine the total
indebtedness of the subnational government – the state and local governments.
While the DMO put the external indebtedness of
the 36 states of the federation and the Federal Capital Territory at $2.21bn
(N344.96bn) as at June 30, 2012; their domestic debt profile could not be
obtained as the data are being determined by the debt office.
As at June 2012, the states’ external debt
profile constituted 36.7 per cent of the nation’s foreign indebtedness while
the Federal Government accounted for 63.3 per cent of the external debt
portfolio.
Although DMO has worked out the domestic
indebtedness of the Federal Government as at September 30, 2012 as N6.34tn, the
external debt profile of the date had not yet been determined.
The combined external debt of both the states and
the Federal Government, which stood at N7.33tn in September, has not yet been
split between the two tiers of government.
Debt breakdown
Analysing the local debt component by instrument
showed that as at June 30, 2010, Federal Government of Nigeria Bonds known for
short as FGN Bonds accounted for 63. 97 per cent (or N2.41tn) of the domestic
debt component.
Nigeria Treasury Bills accounted for N901.02bn or
23.93 per cent while Treasury Bills accounted for N392.07bn or 10.41 per cent.
Development Stocks, on the other hand, accounted for N220m or 0.01 per cent while
Promissory Notes accounted for N63.03bn or 1.67 per cent.
For June 2012, FGN Bonds accounted for N3.71tn or
60.37 per cent; Nigerian Treasury Bills N2.08tn or 33.88 per cent; and Treasury
Bonds N353.73bn or 5.75 per cent.
While the external debt profile increased
by 18.03 per cent within the two year period, the domestic component increased
by 63.48 per cent.
This clearly shows the trend in the past seven
years. The government had shown a preference for borrowing from the domestic
market.
Most of the domestic debts had not been tied to
any specific project but had been raised to finance budget deficits.
Economist and Head of Research and Strategy at
BGL Securities Limited, Mr. Olufemi Ademola, had attributed the increase in
domestic debts to shortfall in revenue and the controversial oil subsidy
expenditure.
What the Federal Government had done over
the past few years was to show foreign debts the exit door and open the doors
too large for domestic debts. That, however, may have been put on the reverse
gear with recent developments.
Request for fresh loan
Coordinating Minister of the Economy and Minister
of Finance, Dr. Ngozi Okonjo Iweala, had not hidden her preference for foreign
borrowing as she had insisted that the Federal Government was crowding the
private sector from the local debt market.
This means that with the Federal Government
active 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 businesses.
Although Okonjo-Iweala championed the nation’s
exit from foreign debt crisis between 2004 and 2006, since she resumed in
government as the Coordinating Minister of the Economy, 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 some opposition from some members of
the National Assembly.
Should it go ahead with the $8bn loan, the move
will balloon the Federal Government’s foreign debt to $13.91bn.
While presenting the 2012 budget proposal to the
National Assembly, President Goodluck Jonathan had lamented that the domestic
debt has 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 spoke of curtailing domestic debt
but he also gave room for the government to accumulate more debt by saying 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 GDP ratio, the
government can add up to 50 per cent of the current debt level.
Nonetheless, the Federal Government still plans
to borrow N633.85bn from the domestic debt market in 2013.
The amount proposed for servicing total domestic
debt would increase to N543.38bn, reflecting the increment expected in the
volume of domestic debt in 2013.
Effect of huge borrowing
In a telephone interview, President of the
Campaign for Democracy, Dr. Joe Okei-Odumakin, had said the increasing
indebtedness was a sign that the nation’s resources were being mismanaged and
portend a great danger to the economy.
She said, “Increasingly, we cannot meet all our
obligations. As we are speaking, some agencies have not received their
allocations. The increasing debt is going to have a skyrocketing effect on the
economy; repaying of the loans.
“We are busy collecting loans that we don’t need
and loans that are not properly utilised. It boils down to corruption. There is
a cause to worry.
“It is not just that we are borrowing money but
the money is not being well utilised. If our founding fathers borrowed this
way, we would have gone into extinction by now.”
She cautioned against frivolous borrowing, adding
that borrowed funds should be properly utilised.
Ademola, on the other hand, said unbudgeted
expenditure for the funding of petrol subsidy consumed in 2011 by the country
must have depleted the nation’s resources and thereby forced the Federal
Government to the debt market.
He had 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.
“Giving 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, generically; 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 added, increasing interest rate would
affect the profit that businessmen can make in the country.
The Chief Executive Officer, Fatrax Securities
Company Limited, Dr. Wale Ositelu, said the level of debt was crowding out the
real sector of the economy.
He said, “There’s a case to be made against the
public sector’s growing borrowing requirement. As the Federal Government has
borrowed more, it has seen an increase in the yield on its borrowing
instruments. These increases in rates have increased the attraction of
government debt instruments. However, it has pushed the private sector out of
the business of issuing bonds, and diverted domestic savings away from the
capital market to the money market.”
Ositelu said that it had become trendy for
government to see nothing wrong with its borrowing pattern on the excuse that
it was still within the globally acceptable limit of 40 per cent of the GDP.
The Managing Director, Sotice Investment Company
Limited, Mr. Adedayo Toluwase, said increasing debt profile was contributing
next to nothing to the economy.
He said, “The concern with rising debt profile is
not really with the rising figures only, a major problem is that the loans are
taken and not always used for capital projects or productive sectors of the
economy. Nigerians will not have cared so much about the debt profile if
government has shown in concrete terms, what it has achieved with previous
loans obtained from both local and external creditors.”
Ositelu added, “The economy stands serious risk
if the government continues like this. One of the implications of the present
debt profile is that Nigeria may be sliding back to the years of debt overhang
few years after it exited from the London and Paris clubs of creditors.”
National Assembly complains
Penultimate Wednesday, members of the House of
Representatives committee on debts, aids and loans questioned Bauchi State
Governor, Isa Yuguda and representatives from other states over their foreign
loan bids.
Yuguda is currently seeking a total of $171m
foreign loan for the state out of the total package of $9.3bn which the Federal
Government has proposed in the 2012-2014 Borrowing Plan.
His Kaduna State counterpart is seeking $234m
loan to fund projects which include the Bi-Lingual Education Programme and the
Urban Water Sector Reform Project. This is in addition to the state’s current
debt stock of $182m.
Also featuring prominently in the league of
foreign loan-seeking states are Lagos, Edo, Kaduna, Ondo, Yobe, Ogun, Cross
River, Adamawa, Kwara, Niger, Enugu and Oyo. Credits sought by the state
governments are part of the total loans captured in the 2012-2014 External
Borrowing Plan of the Federal Government.
And like the governors, President Goodluck
Jonathan has lately been bombarding the National Assembly with requests for
approvals to secure loan facilities from different parts of the world. Recent
requests include approval of the Senate for Nigeria to take a $1.6bn loan to
finance a water supply project in Rivers State and for the execution of housing
projects across the country. The loan, he said, would be financed by the
African Development Bank.
The request is seeking the inclusion of $200m to
finance a water supply project for Rivers State and another $300m for a
low-income housing scheme, which will be financed by the World Bank to provide
affordable housing for Nigerians.
Punch
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