UN raises concerns over Nigeria’s foreign debt profile

The Deputy Secretary-General of the United Nations (UN), Amina Mohammed, has expressed worries over Nigeria’s debt profile.
Mrs.
Mohammed, a former Minister of Environment under the Muhammadu Buhari administration, expressed her concerns while speaking at the International Monetary Fund (IMF) and the UN Working Together Conversation programme.
A clip of the conversation was posted on the IMF website Tuesday She explained that although a former Minister of Finance, Ngozi Okonjo-Iweala, was very influential in the debt relief Nigeria secured in 2005, the nation has since returned to the path of indebtedness.
According to her, the monetary organisations and developing nations should have conversations about their economies, while looking towards creating wealth and facilitating inclusive growth.
She said, “It’s important that we are looking at… the public resources are always going to be important, and so is ODA and the private sector.
But I think we still haven’t yet got the solution so I hope that the work that we do together will open up that space to think more on how to leverage that; how to bring that in.
“As I was coming up from New York, some of the concerns that came up from the meeting we had in China just recently and reports that we have; the debt issues are really big, I mean, having experienced what it was for Ngozi (Okonjo-Iweala) to get debt relief, it took her a few years to convince people, and we are now back again in my country with a level of debt that is worrying.” The UN chief, in the conversation with Christine Lagarde, the Managing Director of the IMF, said Africa’s conception of development is worrying, and better conversations need to be held on how to achieve growth and meet certain development goals, while ensuring that the continent’s debt profile is put in check.
“But it’s happening all over, Erm… Africa is that the way we want to go?” she said of Nigeria and Africa’s debt profile, adding that concerns around stability should be addressed.
“I think we really need to sit down and have a better conversation about all the asks of a growing economy that need to be inclusive, it needs to succeed, because stability is needed more than ever today,” she said.
Under the administration of former President Olusegun Obasanjo in October 2005, Nigeria and the Paris Club announced a final agreement for debt relief worth $18 billion and an overall reduction of Nigeria’s debt stock by $30 billion.
The relief was championed by Mrs. Okonjo-Iweala, then finance minister.
In 2004, prior to the Paris Club debt relief, Nigeria’s external debt stood at US$35.9 billion while the stock of the domestic debt amounted to US$10.3 billion resulting in a total of about US$46.2 billion or 64.3 percent of GDP excluding contractor and pension arrears, according to Mrs.
Okonjo-Iweala.
Explaining the debt profile of the nation in a 2013 article, Mrs.
Okonjo-Iweala said after the successful debt relief initiative, Nigeria’s stock of foreign debt declined dramatically.
“Indeed, in August 2006, when I left office, Nigeria’s foreign and domestic debts amounted to US$3.5 billion and US$13.8 billion respectively – a total of US$17.3 billion or 11.8% of GDP,” the former finance minister wrote.
”By August 2011, when I resumed for the second time as Finance Minister, the domestic debt stock had grown substantially to US$42.23 billion, while the external debt was still a modest US$5.67 billion.
“This implied a total debt stock of US$47.9 billion or 21% of GDP.
Note that while the debt stock grew, our national income also grew so that debt to GDP ratio (the parameter used globally to measure a country’s debt sustainability) remains modest and manageable.
“Thus, the key noticeable change in Nigeria’s indebtedness in recent years has been the growth of domestic debt.
There were two main reasons which resulted in this outcome.
First, the initial growth of the domestic debt stock was because the federal government wanted to deepen the domestic debt markets and generate a yield curve for Nigeria which ultimately could help our corporate bodies to access the capital markets and borrow funds at more affordable rates.” Earlier in the year, one of the leading global rating agencies, Standard and Poor’s (S&P) cautioned Nigeria about its rising debt profile, which has led to a rise in its debt service cost But in August, the Debt Management Office (DMO), which disclosed that Nigeria’s debt composition is now 30 per cent external and 70 per cent domestic (30-70), said the nation’s debt to GDP ratio was sustainable.
DMO’s Director-General, Pat Oniha, said “Nigeria’s borrowing remains sustainable in the short, medium to long term levels, guided by the DMO objective of prudence.” Ms Oniha added that as the nation gears up for 2019 general elections, there was no political risk to Nigeria’s debt because investors are looking at the fundamentals, which she said, included the gradual reduction in inflation rate (11.23 per cent), rising external debt (about $47 billion) and the monetary policy rate (14 per cent).

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