Concerns over Nigeria’s fresh debt pile-up




With a debt profile that is expected to hit N30 trillion, experts have expressed concerns as Nigeria’s debt begins to pile-up again; BENJAMIN UMUTEME reports.

When the Covid-19 pandemic hit nations of the world, and forced many to shut down their economies, petroleum industry players knew that sooner than later, Nigeria’s economy was bound to swim in troubled waters. 

 And with production shutting down so also global demand for oil, Nigeria’s major source of revenue dwindled. According to reports from oilprice.com, inability to produce led to over storage leading to supply glut and with it price crash.

The implication for Nigeria was that there was no revenue for several weeks as the price of oil entered almost negative territory going for as low as $10 per barrel.

However, with OPEC+ and other oil-producing nations agreeing to cuts in production, oil prices experienced a lift. And by May 20, 2020, oil price had rebound to about $35.

The NBS report

 The National Bureau of Statistics (NBS) in its report earlier this year put the nation’s total public debts, consisting of external and domestic debts, stands at N27.4 trillion as at December 31, 2019.

The debt portfolio comprising state and federal debt stocks were N9.02 trillion or 31.55 per cent of the debt was external, while N18.37 trillion or 67.07 per cent of the debt was domestic.

According to the report, Nigeria’s total public debt portfolio as of December 31, 2019, total external debt was N9.02 trillion ($27.67 billion) with a percentage of 32.93. The break down showed that federal government debt instrument accounted for N7.53 trillion ($23.11 billion) with a percentage of 27.50, states and Federal Capital Territory (FCT) accounted for N1.48 trillion ($12.59 billion) with a percentage of 5.43.

A further breakdown of the NBS report showed that total domestic debt stood at $56.37 billion at N18.37 trillion with a percentage of 67.07.

The federal government domestic debt stood atN14.27 trillion ( $43.78 billion) with a percentage of 52.09, with states and FCT contributing N4.10 trillion ($12.59 billion) with a percentage of 14.99. The report showed that the total public debt is the addition of external and domestic debt instruments for the year 2019, which was N27.40 trillion ($84.05 billion).

Rating agencies, Fitch, Moody’s and S&P Global had earlier downgraded Nigeria’s ratings, with the latest of them Fitch, downgrading the country’s ratings to sovereign credit rating (long-term, foreign currency) by one notch from B+ to B, and maintained the negative outlook.

According to the agencies, Nigeria faces the crashing oil price and the coronavirus pandemic with limited, and shrinking external buffers. Fitch’s numbers rest upon average oil prices of $35/b this year and US$45/b in 2021, and the CBN’s “continued reluctance to adjust the exchange rate”.

Covid-19-induced borrowing

As the coronavirus pandemic disrupted economies globally, many countries were forced to borrow from various sources to fund their budget which has almost been wiped out by the disruptions. And Nigeria was not exempted as it had to borrow from the IMF, with further plans to borrow from the World Bank, Islamic Development Bank, African Development Bank, and other multilateral institutions.

                                                                                                                                                                                                                                                                                                        Before the lockdown of Nigeria came into effect, the federal government had proposed to borrow $6.9 billion from international lenders to help counteract the impact of coronavirus on the economy, the country. Analysts say that if the loans are approved the country’s debt stock may hit N30 trillion before the end of 2020.

The federal government had proposed to ask for $3.4bn from the IMF, $2.5bn from the World Bank and another $1 billion from the African Development Bank (AfDB), an amount totaling N2.48 trillion (N360/$1).

According to the members of the Organised Private Sector (OPS), the growing national debt is a cause for concern as the profile has grown from N12.6 trillion in 2015 to N27.4 trillion at the end of 2019.

With oil prices trading below the 2020 budget benchmark, they noted that in the 2020 budget, debt service commitment and recurrent spending were beginning to crowd out capital expenditure, adding that the trajectory was not consistent with the country’s national aspiration to build infrastructure and a competitive economy.

$1.31bn spent on external debt servicing

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 compared to $1.47 billion spent in the corresponding period of 2018.

Experts’ concerns

Meanwhile, experts continue to stress that the 2020 budget lacks the capacity to drive key developmental metrics in the economy. Experts continue to stress that while the country’s debt to GDP ratio is sustainable for now, the cost of servicing the debt eats deep into the country’s already depleting revenue.

In its 2020 Macroeconomic Outlook, NESG stated that, “Nigeria’s mounting debt profile is a major concern despite the country having about $900 billion worth of dead capital in properties and agricultural lands (PwC Nigeria, 2019).”

The managing director/chief executive officer, Financial Derivatives Company, Bismarck Rewane said the total public debt, which rose to N26.22 trillion as of September 2019 from N25.70 trillion in the same period of 2018, raises concern.

Rewane said what the debts were used for would determine whether they would help or hurt the nation’s economy.

He said, “If the debts are there, and you have roads, rail tracks and power stations; then there is no problem because the power generated, for example, will give you output that you will use to service the debt. The question we need to ask is: what were the debts used to do and are the debts increasing productivity in the country?”

In the same vein, former Vice President Atiku Abubakar stated that, “The fact that Nigeria currently budgets more money for debt servicing (N2.7 trillion), capital expenditure (N2.4 trillion) is already an indicator that we have borrowed more money than we can afford to borrow.”

Speaking with Blueprint Weekend, a public affairs analyst, Godwin Ubochi, said the country has borrowed so much without its impact on the economy.

He said, ‘In a functional economy, a country can borrow to augment shortfalls in revenue. In that case, you know for sure what you are borrowing for and the source of repayment is certain. The loans are tied to specific viable projects devoid of corruption, stealing and misappropriation.

 “However, in the case of Nigeria, the situation is different. Most of the numerous loans obtained from IMF, World Bank, China, EU, etc, by the various governments cannot be properly accounted for because of endemic and systematic corruption in the polity. Nigeria is virtually broke because of the fall in oil price which is about $34 per barrel. It is made worse by the Covid-19 pandemic ravaging the entire world which may likely drag the world economy into recession.”

Uwaleke noted that increased borrowing by the federal government is not healthy for the economy, little wonder Nigeria’s sovereign Eurobonds are experiencing high yields and low price. He said further that with “2 Eurobonds and 1 Diaspora bond totaling $1.3 billion due for bullet payment between 2021 and 2023. And another payment, amounting to $1.11 billion, will mature barely two years after,” meeting the obligations is going to be an uphill task.

“In our current budget which the government does not have a clue on how to execute it, a whopping sum of about N2 trillion was allocated to debt servicing alone. Most of our loans from China are without any local contents materially, personnel wise or by way of technology transfer.

 “Since we hardly borrow right, nor do we account properly for previous loans I am of the opinion that Nigeria looks inward, block the leakages in the system, reduce cost of governance and deal with corruption. We should also endeavour to diversify the economy with emphasis on agriculture and manufacturing. Let us utilise what is available, live within our means by reducing our appetite for foreign goods. More loans for the country are not best way to go, in my view.”

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