President Muhammadu Buhari

Francis Ezem

Despite the marginal decline in the domestic debt obligations of the Federal Government of Nigeria, the country is still suffocating under huge debt obligations, according to a report conducted by FBNQuest Capital Research team

Data obtained from the Central Bank of Nigeria CBN show that Nigeria spent a whopping $1.31 billion to cover external debt obligations between January and November 2019.

According to the data, external debt service payment stood at $1.31 billion at the end of November 2019, compared to $1.47 billion spent in the corresponding period of 2018.

The Federal Government’s bill for domestic debt service totaling N607 billion in the third quarter of 2019, compared with the year-earlier figure of N634 billion. This is more than 20 percent of the total capital expenditure in 2020.

 “This was the fourth successive quarterly decline on a year-on-year basis. Externalisation, which is the deployment of Eurobond proceeds to pay down maturing Nigerian Treasury Bills (NTBs), has played its part. Nor should we overlook the downward trend in rates, which will become highly visible in the Debt Management Office’s (DMO) data releases for fourth quarter of 2019 and the current quarter.

 “On these grounds, the data are the riposte to the argument that the FGN is suffocating under its debt obligations,” the researchers said.

They added that the movement in interest rates suggests that there is a fair bit of headroom in the budget and medium-term framework projections for total debt service (TDS) of N2.45 trillion this year, N2.74 trillion in 2021, and N2.94 trillion in 2022. Domestic payments account for about 85 percent of total debt service.

“The movement in rates will compensate in part for pitifully low revenue generation. Total inflows to the FGN budget picked up from N2.66 trillion in 2017 to N3.87 trillion in 2018, according to the Budget Office of the Federation, and to N4.25 trillion in January-September 2019 per the approved 2020 budget,” the analysts added.

That budget has total inflows at N7.60 trillion. TDS would represent 32.2 percent of these inflows. The reality is that both projections appear too high: the first due to interest rate assumptions and the second due to over-optimism.

Five major domestic debt instruments of the Federal Government cumulatively gulped N606.87 billion as service bill in the months of July, August, and September 2019.

These debt instruments include the Nigerian Treasury Bills (NTBs); Federal Government of Nigeria (FGN) Bonds; Treasury Bonds; FGN Savings Bonds; and FGN Sukuk.

Assuming an average of this amount in the four quarters of 2019, it means the country incurred about N2.43 trillion in servicing domestic debts, beside the foreign debt component.

While the huge debt service subsists, in 2019, government consistently recorded revenue shortfalls on monthly basis, with November 2019 figure being estimated at about N218 billion.

A breakdown of the debt service cost showed that FGN Bonds accumulated the highest bill of N484.27 billion, averaging a monthly value of N161.42 billion in the period under review.

This was followed by the NTBs, with a service cost profile of N104.58 billion, and trailed by Treasury Bonds at N9.38 billion.

The least of the domestic debt service bill component came from the newly introduced FGN Savings Bond at N355.63 million, given its low debt accumulation and interest rate charges, while the Sukuk took N8.3 billion.

Specifically, in July 2019, the government incurred N202.54 billion servicing debts across four of the major five instruments, the data from the country’s debt manager showed.

While the government also spent N172.66 billion in August to service the domestic debts in four of the five instruments, the biggest service cost was incurred in September 2019, valued at N231.67 billion, across the five major debt instruments.

In the 2020 budget, about N2.7 trillion is already earmarked for debt service, competing favourably in budgetary provision with the capital expenditure, an indication of sustained rise in debt portfolio and fiscal imbalance.

Already, a deficit of about N2.3 trillion, which analysts have described as unrealistic, has been approved in the 2020 budget. This deficit would be funded by further domestic and foreign borrowings. In other words, the country has booked another round of borrowing, with increased debt service costs as consequences.

The latest data from the Debt Management Office (DMO) showed that the N12.118 trillion level of obligations by June 2015 has grown to a new height of N26.215 trillion as at the end of September, under the watch of President Muhammadu Buhari.

In no ambiguous terms, it has increased by about N14 trillion through additional borrowings by the federal and state governments. This is in just less than five years.

The Director-General of the DMO, Ms. Patience Oniha, explained that the growing trend in borrowing by the country was a mix of revenue generation challenge and the fragile nature of the Nigerian economy.

Source: Daily Independent