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.
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