BY BAMIDELE FAMOOFO
Contrary to claims by fiscal authorities that it is safe for Nigeria to continue to borrow to run its budget, the monetary authorities has said the nation may soon run into trouble except it diversifies its revenue base.
The 11-man member of the Monetary Policy Committee (MPC) in a communiqué issued after its meeting on July 19, noted the Federal Government’s increasing debt profile and expressed concerns over debt sustainability given that global uncertainties remain elevated.
The MPC thus reiterated its call to the Federal Government to urgently diversify its revenue sources through various initiatives, such as, the development of a viable tax framework for the extractive and mineral export industries, to strengthen its fiscal buffers.
Recently, the Debt Management Office (DMO) through a statement said that despite increased borrowings, total public debt in terms of Debt to Gross Domestic Product remained at a moderate level, but Debt Service-to-Revenue ratios were high.
“The projected ratios of Total Public Debt to GDP at 26.1% and 25.8% in 2022 and 2023 respectively, were below Nigeria’s self-imposed Limit of 40% and within the 55% Limit recommended by the WB and IMF, as well as Economic Community of West African States’ convergence threshold of 70%. The ratio remained within the 40% limit when Guaranteed Loans and the Ways and Means Advances at the Central Bank (CBN), were included. Going forward, the sustainability of the Public Debt requires that Government’s revenues are enhanced significantly while the Government continues to explore more concessional and semi-concessional sources for its borrowing and refinancing needs,” DMO said.
Meanwhile, domestic debt stood at about N20.14 trillion as at March 31, 2022. It accounts for 48.41 percent of gross national debt. Breakdown of domestic debt showed that FGN Bonds account for 70.7 percent of local debts at about N14.24 trillion. NTBs accounts for about 21.9 percent of the domestic debt portfolio at N4.41 trillion while Promissory Notes stood at N762.54 billion representing 3.79 percent of local debt in the review period.
Others are FGN Sukkuk, N612.56 billion or 3.04 percent; Nigerian Treasury Bonds, 0.38 percent (about N75.99billion). Green Bonds and FGN Savings Bond registered N25.69 billion and N18.12 billion, accounting for 0.13 percent and 0.09 percent respectively of total local debt in first quarter of 2022.
The Debt Management Office (DMO) puts the value of external debt component of the nation in first quarter 2022 at about $39.97 billion. Breakdown of the components of the foreign debt showed that Multilateral debt (debt owed to international financial institutions) like the International Monetary Fund (IMF), World Bank and the African Development Bank Group stood at about $18.96 billion, representing 47.43 percent of the total external debt. As at end of first quarter 2022, Nigeria’s exposure to the IMF stood at about $3.40 billion while total debt to the World Bank was $12.72 billion.
Borrowings from the African Development Bank Group stood at about $2.85 billion. African Development Bank (AfDB) accounts for the bulk of the credit at $1.55 billion followed by African Development Fund (ADF) with $956.12 million. Others are International Fund for Agricultural Development (IFAD), $238.14 million; Islamic Development Bank (IDB), $45.27 million; European Development Fund (EDF). $43.59 million; Arab Bank for Economic Development in Africa, $5.70 million; and Africa Growing Together Fund (AGTF), $4.72 million.
The Commercial component of the external debt, which naturally attracts very high interest rate stood at about $15.92 billion which represents 39.83 percent. Bilateral, country-based debt stood at about $4.5 billion with China leading with $3.67 billion, accounting for about 82 percent of the component. The other countries which Nigeria is indebted to are France (Agence Francaise Development), $567.89 million; Germany (Kreditanstalt Fur Wiederaufbua), $164.04 billion; Japan (Japan International Cooperation Agency) $67.96 million; and India (Exim Bank of India) $28.33 million.
About N669billion was spent to service domestic debt in the first quarter period of 2022. More money was deployed to debt servicing in March with N376.44 billion released. In January, N188.36billion was deployed to service debt while N103.88billion was spent in February. The bulk of cash spent on debt servicing came from sales of Federal Government Bonds and Sovereign Bonds. Other instruments through which FGN raised funds to service its domestic debt are the FGN Sukuk rentals and Nigerian Treasury Bills (NTBs). About N630.54 billion was raked from the sales of FGN Bonds in first quarter followed by FGN Savings Bond, N340.42 billion. FGN raised about N29.64 billion from the sale of NTBs and N8.17 billion from Sovereign Sukuk rental in the same period.
On the other hand, actual external debt service payment in first quarter stood at $584.79 billion. Commercial loans took the Lion’s share at 44.86 percent or $246.16 billion while multilateral loans gulped 31.58 percent valued at $173.34 billion. About $129.29 billion was spent on servicing bilateral loans in first quarter of 2022. It accounts for 23.56 percent of the total spent on loan servicing in the review
period.
