With the recent domestic and international borrowing spree,
Nigeria’s debt has increased by over N10 trillion since President
Muhammadu Buhari took over the reins of power on 29 May 2015. The
debt profile is now about N22 trillion or $73 billion.
than three years. This is quite significant because by May 29,
2015, the nation’s debt profile stood at N12.06 trillion, while
between 2015 and 2017, it went up to N22trillion.
Some experts who spoke with Saturday Tribune warned that high
debt stock could undermine the nation’s development as it did
before the 2004 debt relief.
According to data from the Debt Management Office (DMO), total
debt profile as of early June 2015 was approximately N12.06
trillion but Director General of the agency, Ms. Patience Oniha
told members of the National Assembly recently that as of September
2017, the debt stock for both the federal and state governments had
risen to over N20.373 trillion.
In addition to this total, the Federal Government floated the $3
billion Eurobond in November 2017; N10.69 billion Green Bond in
December 2017 and another $2.5 billion Eurobond early this month,
all totalling another N2 trillion.
Prior to the Paris Club debt relief in 2004, Nigeria’s overall
debt stock was $46.2 billion with external debt standing at $35.9
billion while the stock of the domestic debt amounted to $10.3
billion resulting in a total of about US$46.2 billion.
But between 2010 and 2014, the nation’s debt profile rose by
$18.40 billion (N3 trillion) according to the analysis of DMO going
from $35.09 billion; to $41.55 billion in 2011; to $48.49 billion
in 2012; $54.54 billion in 2013; and $53.49 billion in 2014.
At the 2017 World Bank/International Monetary Fund annual
meetings in Washington DC, last October, both the World Bank and
IMF raised the issue of Nigeria’s rising debt profile, warning of
the dire consequences of this should there be a slump in the price
of crude oil, Nigeria’s main foreign exchange earner.
But in her defence of the government’s strategy, Finance
Minister, Kemi Adeosun, told financial journalists at the meetings
in Washington that, “Nigeria’s debt-to-GDP ratio is one of the
lowest. We are at 19 per cent, but most advanced countries have
over 100 per cent.
“I am not saying we need to move to 100 per cent, but I am
saying we need to tolerate a little more debt in the short-term to
deliver the rails, the roads and power so as to generate economic
activities, jobs, revenue, which would be used to pay back the
debt.
“What we are trying to do is to create enough headroom to invest
in capital projects that the country desperately needs. I do not
think there is any Nigerian that will say we do not need to invest
on power, do the roads, and that will not want us to fix 17 million
housing deficits, build rails and they will generate economic
activities and jobs.”
She added, “Why do we have to borrow? If you think back to the
problem we face, our principal source of revenue plummeted by up to
85 per cent, so we had no choice.”
At 19 per cent, Nigeria’s debt to GDP is healthy but the real
issue is the debt to revenue ratio, which is what actually
determines the ability of the country to repay her debts. According
to Mrs Gloria Joseph-Raji, a World Bank’ Senior Economist,
Nigeria’s debt to revenue went up from 35 per cent in 2015 to 60
per cent in 2016. If without the new foreign debts Nigeria
currently expends 66 per cent of her total revenue on debt
servicing, leaving just 34 per cent for both capital and recurrent
expenditure, what sense does it make to take more debts? What
economic sense does it make to borrow more to offset existing
debts?
However, the Bank for International Settlements Data regards the
flurry of recent Eurobond issuance as adding to an already-record
debt tally for sub-Saharan Africa, which has ballooned to over $200
billion from less than 30 billion in 2007.
Speaking with Reuters, a news agency, Kevin Daly, Asset Manager
at Standard Life Aberdeen, said, “If you have a lot of issuance in
a short period of time, that tells you something.
“Maybe these guys are realising that their borrowing costs are
going to potentially go higher over the course of the year if we
get a continued rise in Treasury yields and further rate hikes by
the Fed.”
And according to both Finance Minister Kemi Adeosun and Oniha,
Nigeria intends to lift the proportion of dollar debt to 40 percent
from its current level of 27 percent, to replace expensive naira
bonds with 10-year interest rates as high as 14 percent.
“Nigeria is focused on reducing the cost of our debt portfolio
and ensuring we have the optimal mix between domestic and
international debt,” Adeosun said.
“The proceeds of the dollar issuance … will be used to
re-finance domestic debt, which is high-cost and short-term, with
lower-cost international debt with a longer tenure.”
Oniha on her part told Saturday Tribune that the country’s debt
management policy entails that 60 per cent of borrowing should be
from the domestic market, that is, Treasury Bills, FGN Bonds,
Savings Bonds and then Green Bonds, and then 40 per cent should be
external.
“The reason for that strategy is that, just as you diversify
your investment, you also diversify your sources of funding so you
are not dependent on only one source.
“The percentage of our external debt before we went to the
market in November 2017 was only 23 per cent of our total public
debt.
“That was even an improvement when you compare it to 2008, 2009
where over 80 per cent of our total public debt was from the
domestic market.”
Ironically, Oniha said Nigeria was borrowing more externally in
order to ultimately reduce the burden of debt service, explaining
that by 2016 and 2017, Nigeria was borrowing at rates as high as 17
and 18 per cent while the rate on Treasury Bills, which is a
discounted instrument, got to about 18 per cent.
Describing the rates as high, the debt management boss said that
was the rationale behind the government’s resort to borrowing
internationally at anywhere between 6 and 7 per cent.
“If we pick the November $3billion euro bond we issued, the one
for 10 years, the $1.5billon was at 6.5 per cent and the one for 30
years was 7.62 per cent.
“If you compare those to the domestic borrowing, you are making
huge savings including even for the 30years.
“So for the 30 years, you are making a savings of up to 10 per
cent per annual and that is huge. In terms of interest cost, which
you can describe as debt service, going external reduces the growth
of our debt service obligations.
“It also reduces the cost of borrowing. Then of course we were
able to access longer term funds, which is what we need to build
major roads, major bridges or airports.
“It is not five-year money you would use; it is long-term money
for structures because structure-money is always long term because
infrastructure can last several generations.”
On efforts by the Federal Government to stem down both domestic
and foreign borrowings, Adeosun said, “The solution to borrowing in
Nigeria is that we must pay tax. If you pay the taxes properly,
there is no need to borrow. Of course, there is the responsibility
on the part of government to be more responsible and efficient. We
are really focusing on this. We are trying to find ways to cut
cost.”
Nonetheless, there have been allegations, especially by the
National Assembly that government has been diverting parts of the
loans taken to projects other than those for which they were
obtained.
Senate recently alleged a diversion of $600 million foreign loan
meant to revive the power sector to remodelling of four airports
across the country.
The said $600 million Euro bond from the Chinese government was
meant for the rehabilitation of the power sector but $100 million
of the said sum was said to have been used as counterpart funding
for the remodelling of the airports in Lagos, Abuja, Kano and Port
Harcourt.
Another investigation also revealed that about $4.8bn foreign
loans obtained between 2015 and 2017 were on programmes and not
projects for which they were obtained. Some of the loans include
Economic Governance, Diversification and Competitiveness Support
Programme (EGDCSP) getting allocation of $600m.
The programme was meant to create the fiscal space to facilitate
a smooth implementation of the government’s budget, support fiscal
and structural reforms, and improve the targeting of social sector
spending to protect the most vulnerable segments of the
population.
There was another $500m taken from the International Bank for
Reconstruction and Development (IBRD) and $400m AfDB Fund for
development finance institutions.
Yet again was $500m from the International Development
Association (IDA) for the Saving One Million Lives, which is a
scheme to expand access to essential primary health care services
for women and children.
According to DMO, the Federal Government secured UA3.3m ($5.06m)
and $200m for the Urban Water Sector Reform and Port Harcourt Water
Supply and Sanitation projects, and $33.17m for the Ogun State
Urban Water Supply Project, while the remaining $100m was for the
Lagos Integrated Urban Development Project.
High debt stock dangerous —Experts
Chief Executive Officer, RTC Advisory Services, Mr. Opeyemi
Agbaje, disagreed with the option of taking loans for development
since there is the alternative of private sector funding of
infrastructure development.
According to him, there is enough private capital across the
world that could be attracted to Nigeria rather than government
borrowing for development.
On decision of government to split its debt into 40:60 ratio of
foreign and local portfolio, Agbaje cautioned that the country
could run into problems should oil prices slide seriously again and
there is not enough foreign exchange to service the dollar
components of the loans.
While Dr Austin Nweze, a lecturer at the Lagos Business School,
was not averse to taking loans, he frowned at borrowing to fund
consumption.
Nweze, in an interview with Saturday Tribune, said the World
Bank recommends that a country’s debt stock should not exceed 40
per cent of its Gross Domestic Product (GDP), adding that Nigeria
had yet to hit that mark.
He said, “Why is the government borrowing? Is it borrowing to
implement the budget or borrowing to pay salaries? Our debt stock
is not being used for productive activities but they are being used
for consumption. No matter what the government says, I can tell you
that part of the borrowed money would be used for political
campaigns. Next year is election year. So, the motivation for some
of these borrowings is to have money to fund elections. The major
challenge of the country is that it is a mono-product economy and
not much is being done to diversify the economy.
“They said the money from Sukuk bond would be tied to certain
projects but what is happening now? If the yields are not properly
utilized, the projects are rolled over and the debts become a
burden. If the government is sincere we will make progress as a
country. No country can survive when it borrows to consume. Iceland
borrowed to finance ICT. Today that project has paid back the debt.
Spain borrowed to fund infrastructure in some parts of the country.
Today, the project is paying back the debt. But when we borrow
here, the bulk of the money ends up in private pockets.”
The economist added, “Our children have a huge debt overhang,
they are likely to spend their lives paying debts of their parents.
Some of our leaders are myopic; they do not think about the effect
of these debts on the coming generations.
“High debt profile is undermining development of Nigeria. You
end up paying much more than you borrowed on interest alone. The
money that should have been deployed to developmental projects will
now be used to pay just interest.
“If borrowing is for production, it is good but if it is
consumption, it is disastrous.”
According to Nweze, leaders of African and other developing
countries should ponder on why the developed countries keep
advancing them loans. “It is to control them. It is to enslave
them. They do not lend you money because they love you. It is a
means of second slavery because they know that it will be difficult
for you to pay back. That leaves you tied to their apron
string.”
With the recent domestic and international borrowing spree,
Nigeria’s debt has increased by over N10 trillion since President
Muhammadu Buhari took over the reins of power on 29 May 2015. The
debt profile is now about N22 trillion or $73 billion.
than three years. This is quite significant because by May 29,
2015, the nation’s debt profile stood at N12.06 trillion, while
between 2015 and 2017, it went up to N22trillion.
Some experts who spoke with Saturday Tribune warned that high
debt stock could undermine the nation’s development as it did
before the 2004 debt relief.
According to data from the Debt Management Office (DMO), total
debt profile as of early June 2015 was approximately N12.06
trillion but Director General of the agency, Ms. Patience Oniha
told members of the National Assembly recently that as of September
2017, the debt stock for both the federal and state governments had
risen to over N20.373 trillion.
In addition to this total, the Federal Government floated the $3
billion Eurobond in November 2017; N10.69 billion Green Bond in
December 2017 and another $2.5 billion Eurobond early this month,
all totalling another N2 trillion.
Prior to the Paris Club debt relief in 2004, Nigeria’s overall
debt stock was $46.2 billion with external debt standing at $35.9
billion while the stock of the domestic debt amounted to $10.3
billion resulting in a total of about US$46.2 billion.
But between 2010 and 2014, the nation’s debt profile rose by
$18.40 billion (N3 trillion) according to the analysis of DMO going
from $35.09 billion; to $41.55 billion in 2011; to $48.49 billion
in 2012; $54.54 billion in 2013; and $53.49 billion in 2014.
At the 2017 World Bank/International Monetary Fund annual
meetings in Washington DC, last October, both the World Bank and
IMF raised the issue of Nigeria’s rising debt profile, warning of
the dire consequences of this should there be a slump in the price
of crude oil, Nigeria’s main foreign exchange earner.
But in her defence of the government’s strategy, Finance
Minister, Kemi Adeosun, told financial journalists at the meetings
in Washington that, “Nigeria’s debt-to-GDP ratio is one of the
lowest. We are at 19 per cent, but most advanced countries have
over 100 per cent.
“I am not saying we need to move to 100 per cent, but I am
saying we need to tolerate a little more debt in the short-term to
deliver the rails, the roads and power so as to generate economic
activities, jobs, revenue, which would be used to pay back the
debt.
“What we are trying to do is to create enough headroom to invest
in capital projects that the country desperately needs. I do not
think there is any Nigerian that will say we do not need to invest
on power, do the roads, and that will not want us to fix 17 million
housing deficits, build rails and they will generate economic
activities and jobs.”
She added, “Why do we have to borrow? If you think back to the
problem we face, our principal source of revenue plummeted by up to
85 per cent, so we had no choice.”
At 19 per cent, Nigeria’s debt to GDP is healthy but the real
issue is the debt to revenue ratio, which is what actually
determines the ability of the country to repay her debts. According
to Mrs Gloria Joseph-Raji, a World Bank’ Senior Economist,
Nigeria’s debt to revenue went up from 35 per cent in 2015 to 60
per cent in 2016. If without the new foreign debts Nigeria
currently expends 66 per cent of her total revenue on debt
servicing, leaving just 34 per cent for both capital and recurrent
expenditure, what sense does it make to take more debts? What
economic sense does it make to borrow more to offset existing
debts?
However, the Bank for International Settlements Data regards the
flurry of recent Eurobond issuance as adding to an already-record
debt tally for sub-Saharan Africa, which has ballooned to over $200
billion from less than 30 billion in 2007.
Speaking with Reuters, a news agency, Kevin Daly, Asset Manager
at Standard Life Aberdeen, said, “If you have a lot of issuance in
a short period of time, that tells you something.
“Maybe these guys are realising that their borrowing costs are
going to potentially go higher over the course of the year if we
get a continued rise in Treasury yields and further rate hikes by
the Fed.”
And according to both Finance Minister Kemi Adeosun and Oniha,
Nigeria intends to lift the proportion of dollar debt to 40 percent
from its current level of 27 percent, to replace expensive naira
bonds with 10-year interest rates as high as 14 percent.
“Nigeria is focused on reducing the cost of our debt portfolio
and ensuring we have the optimal mix between domestic and
international debt,” Adeosun said.
“The proceeds of the dollar issuance … will be used to
re-finance domestic debt, which is high-cost and short-term, with
lower-cost international debt with a longer tenure.”
Oniha on her part told Saturday Tribune that the country’s debt
management policy entails that 60 per cent of borrowing should be
from the domestic market, that is, Treasury Bills, FGN Bonds,
Savings Bonds and then Green Bonds, and then 40 per cent should be
external.
“The reason for that strategy is that, just as you diversify
your investment, you also diversify your sources of funding so you
are not dependent on only one source.
“The percentage of our external debt before we went to the
market in November 2017 was only 23 per cent of our total public
debt.
“That was even an improvement when you compare it to 2008, 2009
where over 80 per cent of our total public debt was from the
domestic market.”
Ironically, Oniha said Nigeria was borrowing more externally in
order to ultimately reduce the burden of debt service, explaining
that by 2016 and 2017, Nigeria was borrowing at rates as high as 17
and 18 per cent while the rate on Treasury Bills, which is a
discounted instrument, got to about 18 per cent.
Describing the rates as high, the debt management boss said that
was the rationale behind the government’s resort to borrowing
internationally at anywhere between 6 and 7 per cent.
“If we pick the November $3billion euro bond we issued, the one
for 10 years, the $1.5billon was at 6.5 per cent and the one for 30
years was 7.62 per cent.
“If you compare those to the domestic borrowing, you are making
huge savings including even for the 30years.
“So for the 30 years, you are making a savings of up to 10 per
cent per annual and that is huge. In terms of interest cost, which
you can describe as debt service, going external reduces the growth
of our debt service obligations.
“It also reduces the cost of borrowing. Then of course we were
able to access longer term funds, which is what we need to build
major roads, major bridges or airports.
“It is not five-year money you would use; it is long-term money
for structures because structure-money is always long term because
infrastructure can last several generations.”
On efforts by the Federal Government to stem down both domestic
and foreign borrowings, Adeosun said, “The solution to borrowing in
Nigeria is that we must pay tax. If you pay the taxes properly,
there is no need to borrow. Of course, there is the responsibility
on the part of government to be more responsible and efficient. We
are really focusing on this. We are trying to find ways to cut
cost.”
Nonetheless, there have been allegations, especially by the
National Assembly that government has been diverting parts of the
loans taken to projects other than those for which they were
obtained.
Senate recently alleged a diversion of $600 million foreign loan
meant to revive the power sector to remodelling of four airports
across the country.
The said $600 million Euro bond from the Chinese government was
meant for the rehabilitation of the power sector but $100 million
of the said sum was said to have been used as counterpart funding
for the remodelling of the airports in Lagos, Abuja, Kano and Port
Harcourt.
Another investigation also revealed that about $4.8bn foreign
loans obtained between 2015 and 2017 were on programmes and not
projects for which they were obtained. Some of the loans include
Economic Governance, Diversification and Competitiveness Support
Programme (EGDCSP) getting allocation of $600m.
The programme was meant to create the fiscal space to facilitate
a smooth implementation of the government’s budget, support fiscal
and structural reforms, and improve the targeting of social sector
spending to protect the most vulnerable segments of the
population.
There was another $500m taken from the International Bank for
Reconstruction and Development (IBRD) and $400m AfDB Fund for
development finance institutions.
Yet again was $500m from the International Development
Association (IDA) for the Saving One Million Lives, which is a
scheme to expand access to essential primary health care services
for women and children.
According to DMO, the Federal Government secured UA3.3m ($5.06m)
and $200m for the Urban Water Sector Reform and Port Harcourt Water
Supply and Sanitation projects, and $33.17m for the Ogun State
Urban Water Supply Project, while the remaining $100m was for the
Lagos Integrated Urban Development Project.
High debt stock dangerous —Experts
Chief Executive Officer, RTC Advisory Services, Mr. Opeyemi
Agbaje, disagreed with the option of taking loans for development
since there is the alternative of private sector funding of
infrastructure development.
According to him, there is enough private capital across the
world that could be attracted to Nigeria rather than government
borrowing for development.
On decision of government to split its debt into 40:60 ratio of
foreign and local portfolio, Agbaje cautioned that the country
could run into problems should oil prices slide seriously again and
there is not enough foreign exchange to service the dollar
components of the loans.
While Dr Austin Nweze, a lecturer at the Lagos Business School,
was not averse to taking loans, he frowned at borrowing to fund
consumption.
Nweze, in an interview with Saturday Tribune, said the World
Bank recommends that a country’s debt stock should not exceed 40
per cent of its Gross Domestic Product (GDP), adding that Nigeria
had yet to hit that mark.
He said, “Why is the government borrowing? Is it borrowing to
implement the budget or borrowing to pay salaries? Our debt stock
is not being used for productive activities but they are being used
for consumption. No matter what the government says, I can tell you
that part of the borrowed money would be used for political
campaigns. Next year is election year. So, the motivation for some
of these borrowings is to have money to fund elections. The major
challenge of the country is that it is a mono-product economy and
not much is being done to diversify the economy.
“They said the money from Sukuk bond would be tied to certain
projects but what is happening now? If the yields are not properly
utilized, the projects are rolled over and the debts become a
burden. If the government is sincere we will make progress as a
country. No country can survive when it borrows to consume. Iceland
borrowed to finance ICT. Today that project has paid back the debt.
Spain borrowed to fund infrastructure in some parts of the country.
Today, the project is paying back the debt. But when we borrow
here, the bulk of the money ends up in private pockets.”
The economist added, “Our children have a huge debt overhang,
they are likely to spend their lives paying debts of their parents.
Some of our leaders are myopic; they do not think about the effect
of these debts on the coming generations.
“High debt profile is undermining development of Nigeria. You
end up paying much more than you borrowed on interest alone. The
money that should have been deployed to developmental projects will
now be used to pay just interest.
“If borrowing is for production, it is good but if it is
consumption, it is disastrous.”
According to Nweze, leaders of African and other developing
countries should ponder on why the developed countries keep
advancing them loans. “It is to control them. It is to enslave
them. They do not lend you money because they love you. It is a
means of second slavery because they know that it will be difficult
for you to pay back. That leaves you tied to their apron
string.”
Read more https://nairalaw.com/nigeria-borrows-n10trn-in-30-months/