BY EVEREST AMAEFULE
The nation’s appetite for borrowing to finance critical development projects has been growing in recent times with both the domestic and foreign indebtedness rising by $13.91bn in the last two years, EVEREST AMAEFULE writes
The country currently owes local and international creditors a total of $50.91bn (about N7.93tn), the Debt Management Office has said.
Statistics obtained from the DMO website showed that as of June 30, 2013, the nation’s external debt stood at $6.92bn (about N1.08tn), while the domestic debt component stood at N6.85tn ($43.99bn).
The external debt component comprises debts owed by both the Federal Government and the 36 states of the federation and the Federal Capital Territory.
However, the domestic debt of $43.99bn is owed by the Federal Government alone. The domestic debt of the states could not be obtained as at press time.
By June 2011, the total debt of the country stood at $37bn. This means that in the last two years, the debt stock had risen by $13.91bn. This shows a growth rate of 37.59 per cent.
In terms of instruments, FGN Bonds accounted for N4.03tn or 58.87 per cent of the Federal Government’s domestic debt stock as of June.
Nigerian Treasury Bills accounted for N2.48tn or 36.25 per cent of the domestic debt component of the Federal Government.
On the other hand, Treasury Bills accounted for N334.56bn or 4.88 per cent of the total domestic debt owed by the Federal Government.
Multilateral sources such as the World Bank and African Development Bank accounted for $5.54bn or 80 per cent of the external debt.
Bilateral debts made up of money borrowed from China and France accounted for $845.4m or 12.22 per cent of the nation’s external debt profile.
Commercial debts, including Eurobond and debts owed to Chinese firms, accounted for $536m or 7.75 per cent of the external debt stock.
The Director-General, DMO, Dr. Abraham Nwankwo, had recently said that compared to the level of foreign debt, the Federal Government had over-borrowed from domestic sources.
While unfolding the details of the nation’s Middle Term Debt Management Strategy, which was approved by the Federal Executive Council, Nwankwo said there was an urgent need to rebalance the structure of the nation’s debt because the interest rate payable on domestic debt was too high.
He said the ratio of the Federal Government’s domestic debt stood at 88, while the ratio of the foreign debt stood at 12.
Nwankwo said the appropriate ratio should be 60 for domestic debt and 40 for foreign debt, adding that the newly approved Medium Term Debt Management Strategy would seek to achieve this ratio.
One of the ways of doing this is through the establishment of a sinking fund for retiring matured local debts. The second is by borrowing more from foreign sources.
Our correspondent had reported that with the assumption of office of former Managing Director of the World Bank, Dr. Ngozi Okonjo-Iweala as Minister of Finance and Coordinating Minister of the Economy, the nation would see a reduction in local debts and an increase in foreign debts.
As managing director of the World Bank, Okonjo-Iweala had criticised Nigeria’s debt structure on the grounds that the Federal Government was crowding out private sector borrowers from the debt market.
Although she had championed the exit of the country from the Paris Club of Creditors during her first tenure as Minister of Finance, she is now insisting that the nation’s ballooning domestic debt is not healthy for the economy.
Okonjo-Iweala had reasoned that the Federal Government could do with more foreign sources than borrowing from the domestic market.
It is this scenario that is now playing out under the new Medium Term Debt Management Strategy.
Nwankwo had said, “The main objective of the medium term debts is to develop a strategy that will meet the financing needs of the government at minimum cost, maintain risk at a prudent level and support the development of the market.
“The exercise reflects and addresses, among other realities, the disproportionate reliance on the domestic bond market to fund government deficits – the ratio of domestic and external debt stock as of the end of 2011 was 88:12, whereas the appropriate ratio will be 60:40.”
Other issues addressed by the strategy, he said, included high rate of domestic debt accumulation; and rising debt service payments occasioned by growing debt stock coupled with upward pressure on the average cost of funds and the risk of crowding out the private sector.
The DMO boss said the time of high borrowing from the domestic had served its purpose, which included developing a market structure and culture for long term savings and investment.
He said the new strategy had the capacity to reduce the rate of public debt in general and domestic debt particular to ensure debt sustainability and make budgetary provisions for the repayment of part of maturing FGN Bond obligations instead of refinancing them by creating a sinking fund.
It will also reduce the amount spent on debt service by achieving an optimal mix between the relatively more expensive domestic debt and less expensive foreign debt.
At present, Nwankwo said the difference between the domestic and external average cost of borrowing was about eight per cent per annum.