By Babajide Komolafe
LAGOS — The Nigeria Bureau of Statistics (NBS), yesterday said that the total public debt of the Federal Government and the 36 states jumped by 43 per cent to N18 trillion in 2016.
The bureau disclosed this in its report on Nigeria’s Domestic and Foreign Debt for 2016, issued yesterday.
According to the report, total foreign debt of the Federal Government and 36 states rose by 6.5 per cent to $11.41 billion in 2016 from $10.71 billion in 2015, while the total domestic debt rose by 36.5 per cent to N14.02 trillion from N10.49 in 2015 trillion.
At the exchange rate of N360 per dollar, which is the rate for invisibles, the domestic and foreign debt result in N18.02 trillion for 2016.
The NBS report stated: “Nigerian States and Federal Debt Stock data as at 31st December 2016 reflected that the country’s foreign and domestic debts stood at $l1.41 billion and N14.02 trillion respectively in 2016.
Further disaggregation of Nigerian foreign debt showed that $7.99 billion of the debt was multilateral; $198.25million was bilateral (AFD) and $3.22 billion from the Exim Bank of China credited to the Federal Government of Nigeria (FGN).
“Total FGN debt accounted for 68.72 per cent of Nigeria’s total foreign debt while all states and the Federal Capital Territory (FCT) accounted for the remaining 31.28 per cent. Similarly, total FGN debt accounted for 78.89 per cent of Nigeria’s total domestic debt while all states and the Federal Capital Territory (FCT) accounted for the 21.11 per cent balance.
“A breakdown of the FGN domestic debt stock by instruments reflected that N7.S6trn or 68.41 per cent of the debt are in Federal Government bonds; N3.28 trillion or 29.64 per cent are in treasury bills and N21.99 million or 1.95 per cent are in treasury bonds.
“Lagos State has the highest foreign debt profile among the thirty-six states and the FCT, accounting for 38.70 per cent while Kaduna (6.25 per cent), Edo (5.15 per cent), Cross River (3.22 per cent) and Ogun (2.90 per cent) followed closely.
Similarly, Lagos State has the highest domestic debt profile among the thirty-six and the FCT, accounting for 10.54 per cent; while Delta (8.15 per cent), Akwa Ibom (5.25 per cent), FCT (5.16 per cent) and Osun (4.97 per cent) followed in that order.
Debt is 18% of GDP — Rewane
Financial market chief executives however noted that the huge debt profile portends danger to the economy in terms of job creation and infrastructural development
Commenting, Managing Director/Chief Executive, Financial Derivatives Company Limited, Mr. Bismarck Rewane said that the issue with the level of debt is the huge debt service obligation which now stands at 66 per cent of total federal budget. He said: “The debt profile is just about 18 per cent of our GDP. But the main concern is the debt service which is now at 66 per cent, and this is because the interest rate is too high. There is need to bring down interest rates in this country. I am not saying we should crash interest rates, but we should change the direction.
“The foreign debt can be used to substitute the domestic debt, and that will reduce the interest payment. Even though the level of debt will remain the same, and there is exchange risk, but this will reduce government borrowing from the domestic economy.
“This is because the banks are not lending to the private sector again; what they do is to lend to government because of the high interest rate. So, government is crowding out the private sector. If the private sector cannot borrow, then how do you get of recession? Also the total debt might increase to N25 trillion when you include new borrowings that is sought for capital projects. I think we should begin to tie debt to projects and productivity.”
‘Little headroom for development’
On his part, Managing Director Chief Executive, Cowry Assets Management Limited, a Lagos-based investment firm, Mr. Johnson Chukwu, said there is need to scale back on government borrowing saying the debt profile is unsustainable and could impede infrastructural development. He said: “The Federal government debt service to revenue ratio is moving toward 50 per cent. When you compare this to the capital expenditure; you will see that there is little head room for infrastructural development. The state of economic development in terms of capital development will be very limited.
“The good thing about domestic debt is that government is borrowing in its own currency, so the likelihood of default is low. But unless government increases its revenue we will get to a point of unsustainable debt which will make development almost impossible. So there is need to scale back on government borrowing.
“The domestic debt profile is not good for the system. It implies the Federal Government is crowding out the private sector. A situation where the government borrows at 18 per cent while the private sector is borrowing at 25 per cent does not encourage the private sector to create employment. We should not focus on debt-to-GDP ratio but on the debt service obligation. The level of debt is unsustainable. There is need to scale back on borrowing.”
Debt to hit N21 trillion in 2017
Meanwhile there are indications that the total public debt might rise to N21 trillion this year given the decision of the Federal Government to increase its foreign debt by $7 billion.
This emerged last week, when the Federal Government wrote to the National Assembly, seeking approval for a proposal to borrow $5.85 billion from China to modernise its rail network and another $1.075 billion from the World Bank to help rebuild the insurgency-torn North-East.
Buhari urged parliament in a letter to approve the railway borrowing because China has a limit on funds available from its China Africa Fund. The president wants to sign loan agreements as soon as China approves the project.
“These loans form part of the overall money for the rail strategy,” Buhari said in the letter. The loans are part of the government’s 2016-2018 foreign borrowing plan, he said.
Buhari also asked lawmakers to also approve a $1.075 billion loan to help rebuild the northeast, which has been ravaged by the Boko Haram insurgency, and to expand support to the poor in Nigeria.
“There is need for urgent consideration of the identified projects, which will enable us to start reconstruction and rehabilitation of the region in other to create jobs … and rehabilitate the schools,” he said.
China Exim bank has approved a $1.231 billion loan to modernise the rail network linking the commercial hub of Lagos to Kano, and also a Lagos-Ibadan segment, the letter read.
Reacting to the development, the Head of Research at FSDH Merchant Bank Limited, Ayodele Akinwunmi, told Vanguard that the domestic portion of the debt profile went up astronomically because it was partly in line with the government’s theoretical debt mix plan of 60:40 in favour of domestic.
Even at that, he said the government couldn’t have pursued the foreign portion in 2016 because of the challenged external sector under the unstable oil price regime coupled with production disruptions in the Niger Delta.
Consequently, he stated, the foreign debt servicing and repayment obligation was not going to be favourable and under this circumstance the government had to backtrack on external borrowings.
However, Akinwunmi said the seeming success or huge jump in domestic borrowing was crowding out the private sector as interest rate remained high while scarcity of fund persisted amidst huge government borrowings.
Looking beyond 2016 Akinwunmi said he sees government already leveraging the improved external sector occasioned by a higher oil price and improved oil production to sure up confidence in external borrowings.