Nigeria borrows N10trn in 30 months

EXPERTS WARN THAT DEBT STOCK LEAP DANGEROUS

Sulaimon Olanrewaju and Sanya Adejokun

With the recent domestic and international borrowing spree, Nigeria’s debt has increased by over N10 trillion since President Muhammadu Buhari took over the reins of power on 29 May 2015. The debt profile is now about N22 trillion or $73 billion.

The leap signifies an increase of over 80 per cent in less than three years. This is quite significant because by May 29, 2015, the nation’s debt profile stood at N12.06 trillion, while between 2015 and 2017, it went up to N22trillion.

Some experts who spoke with Saturday Tribune warned that high debt stock could undermine the nation’s development as it did before the 2004 debt relief.

According to data from the Debt Management Office (DMO), total debt profile as of early June 2015 was approximately N12.06 trillion but Director General of the agency, Ms. Patience Oniha told members of the National Assembly recently that as of September 2017, the debt stock for both the federal and state governments had risen to over N20.373 trillion.

In addition to this total, the Federal Government floated the $3 billion Eurobond in November 2017; N10.69 billion Green Bond in December 2017 and another $2.5 billion Eurobond early this month, all totalling another N2 trillion.

Prior to the Paris Club debt relief in 2004, Nigeria’s overall debt stock was $46.2 billion with external debt standing at $35.9 billion while the stock of the domestic debt amounted to $10.3 billion resulting in a total of about US$46.2 billion.

But between 2010 and 2014, the nation’s debt profile rose by $18.40 billion (N3 trillion) according to the analysis of DMO going from $35.09 billion; to $41.55 billion in 2011; to $48.49 billion in 2012; $54.54 billion in 2013; and $53.49 billion in 2014.

At the 2017 World Bank/International Monetary Fund annual meetings in Washington DC, last October, both the World Bank and IMF raised the issue of Nigeria’s rising debt profile, warning of the dire consequences of this should there be a slump in the price of crude oil, Nigeria’s main foreign exchange earner.

But in her defence of the government’s strategy, Finance Minister, Kemi Adeosun, told financial journalists at the meetings in Washington that, “Nigeria’s debt-to-GDP ratio is one of the lowest. We are at 19 per cent, but most advanced countries have over 100 per cent.

“I am not saying we need to move to 100 per cent, but I am saying we need to tolerate a little more debt in the short-term to deliver the rails, the roads and power so as to generate economic activities, jobs, revenue, which would be used to pay back the debt.

“What we are trying to do is to create enough headroom to invest in capital projects that the country desperately needs. I do not think there is any Nigerian that will say we do not need to invest on power, do the roads, and that will not want us to fix 17 million housing deficits, build rails and they will generate economic activities and jobs.”

She added, “Why do we have to borrow? If you think back to the problem we face, our principal source of revenue plummeted by up to 85 per cent, so we had no choice.”

At 19 per cent, Nigeria’s debt to GDP is healthy but the real issue is the debt to revenue ratio, which is what actually determines the ability of the country to repay her debts. According to Mrs Gloria Joseph-Raji, a World Bank’ Senior Economist, Nigeria’s debt to revenue went up from 35 per cent in 2015 to 60 per cent in 2016. If without the new foreign debts Nigeria currently expends 66 per cent of her total revenue on debt servicing, leaving just 34 per cent for both capital and recurrent expenditure, what sense does it make to take more debts? What economic sense does it make to borrow more to offset existing debts?

However, the Bank for International Settlements Data regards the flurry of recent Eurobond issuance as adding to an already-record debt tally for sub-Saharan Africa, which has ballooned to over $200 billion from less than 30 billion in 2007.

Speaking with Reuters, a news agency, Kevin Daly, Asset Manager at Standard Life Aberdeen, said, “If you have a lot of issuance in a short period of time, that tells you something.

“Maybe these guys are realising that their borrowing costs are going to potentially go higher over the course of the year if we get a continued rise in Treasury yields and further rate hikes by the Fed.”

And according to both Finance Minister Kemi Adeosun and Oniha, Nigeria intends to lift the proportion of dollar debt to 40 percent from its current level of 27 percent, to replace expensive naira bonds with 10-year interest rates as high as 14 percent.

“Nigeria is focused on reducing the cost of our debt portfolio and ensuring we have the optimal mix between domestic and international debt,” Adeosun said.

“The proceeds of the dollar issuance … will be used to re-finance domestic debt, which is high-cost and short-term, with lower-cost international debt with a longer tenure.”

Oniha on her part told Saturday Tribune that the country’s debt management policy entails that 60 per cent of borrowing should be from the domestic market, that is, Treasury Bills, FGN Bonds, Savings Bonds and then Green Bonds, and then 40 per cent should be external.

“The reason for that strategy is that, just as you diversify your investment, you also diversify your sources of funding so you are not dependent on only one source.

“The percentage of our external debt before we went to the market in November 2017 was only 23 per cent of our total public debt.

“That was even an improvement when you compare it to 2008, 2009 where over 80 per cent of our total public debt was from the domestic market.”

Ironically, Oniha said Nigeria was borrowing more externally in order to ultimately reduce the burden of debt service, explaining that by 2016 and 2017, Nigeria was borrowing at rates as high as 17 and 18 per cent while the rate on Treasury Bills, which is a discounted instrument, got to about 18 per cent.

Describing the rates as high, the debt management boss said that was the rationale behind the government’s resort to borrowing internationally at anywhere between 6 and 7 per cent.

“If we pick the November $3billion euro bond we issued, the one for 10 years, the $1.5billon was at 6.5 per cent and the one for 30 years was 7.62 per cent.

“If you compare those to the domestic borrowing, you are making huge savings including even for the 30years.

“So for the 30 years, you are making a savings of up to 10 per cent per annual and that is huge. In terms of interest cost, which you can describe as debt service, going external reduces the growth of our debt service obligations.

“It also reduces the cost of borrowing. Then of course we were able to access longer term funds, which is what we need to build major roads, major bridges or airports.

“It is not five-year money you would use; it is long-term money for structures because structure-money is always long term because infrastructure can last several generations.”

On efforts by the Federal Government to stem down both domestic and foreign borrowings, Adeosun said, “The solution to borrowing in Nigeria is that we must pay tax. If you pay the taxes properly, there is no need to borrow. Of course, there is the responsibility on the part of government to be more responsible and efficient. We are really focusing on this. We are trying to find ways to cut cost.”

Nonetheless, there have been allegations, especially by the National Assembly that government has been diverting parts of the loans taken to projects other than those for which they were obtained.

Senate recently alleged a diversion of $600 million foreign loan meant to revive the power sector to remodelling of four airports across the country.

The said $600 million Euro bond from the Chinese government was meant for the rehabilitation of the power sector but $100 million of the said sum was said to have been used as counterpart funding for the remodelling of the airports in Lagos, Abuja, Kano and Port Harcourt.

Another investigation also revealed that about $4.8bn foreign loans obtained between 2015 and 2017 were on programmes and not projects for which they were obtained. Some of the loans include Economic Governance, Diversification and Competitiveness Support Programme (EGDCSP) getting allocation of $600m.

The programme was meant to create the fiscal space to facilitate a smooth implementation of the government’s budget, support fiscal and structural reforms, and improve the targeting of social sector spending to protect the most vulnerable segments of the population.

There was another $500m taken from the International Bank for Reconstruction and Development (IBRD) and $400m AfDB Fund for development finance institutions.

Yet again was $500m from the International Development Association (IDA) for the Saving One Million Lives, which is a scheme to expand access to essential primary health care services for women and children.

According to DMO, the Federal Government secured UA3.3m ($5.06m) and $200m for the Urban Water Sector Reform and Port Harcourt Water Supply and Sanitation projects, and $33.17m for the Ogun State Urban Water Supply Project, while the remaining $100m was for the Lagos Integrated Urban Development Project.

High debt stock dangerous —Experts

Chief Executive Officer, RTC Advisory Services, Mr. Opeyemi Agbaje, disagreed with the option of taking loans for development since there is the alternative of private sector funding of infrastructure development.

According to him, there is enough private capital across the world that could be attracted to Nigeria rather than government borrowing for development.

On decision of government to split its debt into 40:60 ratio of foreign and local portfolio, Agbaje cautioned that the country could run into problems should oil prices slide seriously again and there is not enough foreign exchange to service the dollar components of the loans.

While Dr Austin Nweze, a lecturer at the Lagos Business School, was not averse to taking loans, he frowned at borrowing to fund consumption.

Nweze, in an interview with Saturday Tribune, said the World Bank recommends that a country’s debt stock should not exceed 40 per cent of its Gross Domestic Product (GDP), adding that Nigeria had yet to hit that mark.

He said, “Why is the government borrowing? Is it borrowing to implement the budget or borrowing to pay salaries? Our debt stock is not being used for productive activities but they are being used for consumption. No matter what the government says, I can tell you that part of the borrowed money would be used for political campaigns. Next year is election year. So, the motivation for some of these borrowings is to have money to fund elections. The major challenge of the country is that it is a mono-product economy and not much is being done to diversify the economy.

“They said the money from Sukuk bond would be tied to certain projects but what is happening now? If the yields are not properly utilized, the projects are rolled over and the debts become a burden. If the government is sincere we will make progress as a country. No country can survive when it borrows to consume. Iceland borrowed to finance ICT. Today that project has paid back the debt. Spain borrowed to fund infrastructure in some parts of the country. Today, the project is paying back the debt. But when we borrow here, the bulk of the money ends up in private pockets.”

The economist added, “Our children have a huge debt overhang, they are likely to spend their lives paying debts of their parents. Some of our leaders are myopic; they do not think about the effect of these debts on the coming generations.

“High debt profile is undermining development of Nigeria. You end up paying much more than you borrowed on interest alone. The money that should have been deployed to developmental projects will now be used to pay just interest.

“If borrowing is for production, it is good but if it is consumption, it is disastrous.”

According to Nweze, leaders of African and other developing countries should ponder on why the developed countries keep advancing them loans. “It is to control them. It is to enslave them. They do not lend you money because they love you. It is a means of second slavery because they know that it will be difficult for you to pay back. That leaves you tied to their apron string.”


http://www.tribuneonlineng.com/135964/

I hope they sell this country someday and share the proceeds among all Nigerians.

On a serious note.. the country is literally going down the drain. The future mortgaged and the proceeds cornered..

Why borrowing externally when a group of politicians a raise that amount...

one of the various legacies of baber. yet no effect of all these money on the populace. this is not the governments concern for now, its how to win 2019 elections. the economy, finance, health etc can wait

See Buharinomics. Flawed Economics at its peak. Not only is the trend a red flag, but more worried by the continous diversion of the funds to projects different from agreed loan covenants.

Nigerian economy would finally collapse from inflation after the election next year. the only way to eventually pay back these debts is to gradually print more money in the coming years which would
would devalue the naira and multiply inflation. Nigerians would never know financial success again.

10 trillion? How and when are we gonna be free from debt?

Buhari the clueless general must go abeg

Metuh:
10 trillion? How and when are we gonna be free from debt?


Buhari the clueless general must go abeg

it says Nigeria not Buhari.... Nigeria consists of the FG and The states....

My unborn kids wont forgive me if i dont emigrate fast

10 trillion debt and nothing tangible to show for it. Baba Yusuf is a crook.

Nawa o.wetin saibohary take 10trillion take do? Ah God

It is you and your family that will never have financial success again.

Mgbadike80:
Nigerian economy would finally collapse from inflation after the election next year. the only way to eventually pay back these debts is to gradually print more money in the coming years which would
would devalue the naira and multiply inflation. Nigerians would never financial success again.

Amberon11:
It is you and your family that will never have financial success again.

tackle the facts instead of resorting to insults.

This is alarming and terrifying. Such huge sum and yet nothing to show for it... Is PMB a curse or what

When you said it it wasn't an insult but when I redirected it to you it became an insult?
Talk about double standards.

Mgbadike80:
tackle the facts instead of resorting to insults.

We haven't seen anything. After this administration might have left, it will shock the whole world what has transpired in this administration.

In just 3 years Buhari has out borrowed the entire 16 years of PDP and the strange thing is that nobody can find where he spent this money... Buhari is the worst possible leader you can come across

Buhari and his band of APC crooks has finally destroyed this country!! Nigeria is headed for disaster and I don't see any way of escape. Population is ballooning, debt is skyrocketing, income is plummeting, anarchy is looming large!! If things continue like this then I would have no option than to leave this sh!thole by all means. The crowd is gathering fast. Yet some idiots and zombies are still supporting this terrorist called Buhari!?

Amberon11:
When you said it it wasn't an insult but when I redirected it to you it became an insult?
Talk about double standards.

I stated facts and arrived at a conclusion. you should do the same instead of flinging insults around.

proeast:
Buhari and his band of APC crooks has finally destroyed this country!! Nigeria is headed for disaster and I don't see any way of escape. Population is ballooning, debt is skyrocketing, income is plummeting, anarchy is looming large!! If things continue like this then I would have no option than to leave this sh!thole by all means. The crowd is gathering fast. Yet some idiots and zombies are still supporting this terrorist called Buhari!?

you forgot to add that the price of oil is falling as the world embraces renewable energy. Nigerian economy is finished.

Gbaguan

Even the capital projects the man is talking is not really much in 2018 budget so you begin to wonder were all the money is going to......

And there's no news yet about the missing 36 billion dollars.


Boooohari is a gworo-chewing Foooooolani Mooooooooslim terrorist.

what a shame, debt should be tied to viable projects only not programmes. The airports should be privatized, the railways should be handed over to the Chinese or British on a BoT basis for 20 years.

Hmmm...

FarahAideed:
In just 3 years Buhari has out borrowed the entire 16 years of PDP and the strange thing is that nobody can find where he spent this money... Buhari is the worst possible leader you can come across

My brother not yet 3 years sir we are only reviewing the full fiscal years of 2016 and 2017 as you know this kleptomaniac administration of Buhari came on board in March and resumed in May 29, 2015 but started fully late December 2015 and you will agree with me that 2018 is still ongoing hence we only factor in the first quarter (Jan - March) of 2018. You may want to consider this madness below;

Cost of Servicing Debt

2012 N559.6b
2013 N 591.8b
2014 N941.7b
2015 N1tr
2016 N1.3tn
2017 N1.7tn*
2018 N2.2tn*

2012 - 2015 Real cost

2017 & 2018 budgeted for and may be more than that. This level of debt servicing isn't sustainable

DEBT PROFILE

June 2015 N12.19tn
Dec 2015 N12.60tn
March 2016 N13.83tn
June 2016 N16.30tn
Sept 2016 N16.88tn
Dec 2016 N17.36tn
March 2017 N19.16tn
June 2017 N19.64tn
Sept 2017 N20.37tn
Dec 2017 N21.73tn
March 2018 N22.71tn ($74.29bn)
June 2018 N??

Is this sustainable? They sure will bankrupt our dear nation if nothing is done to stop this debt binge.

Buhari is a heavyweight failure with a resounding bang.

Dude what is your problem? How was what you states fact and how is redirecting your own statement back you an insult?

Mgbadike80:
I stated facts and arrived at a conclusion. you should do the same instead of flinging insults around.

Don't worry. We shall probe APC for every Kobo.

[quote author=Mgbadike80 post=70084962] you forgot to add that the price of oil is falling as the world embraces renewable energy. Nigerian economy is finished. [/quote/] Ofcourse, that's already a known fact. Even without that, Nigeria was already doomed with the kind of structural and fundamental problems it has. We are said to be about 180 million people yet rely only on one crude commodity without any value added for forex and survival. We forgot that countries that used oil wealth to become great all have small populations. What is the population of Saudi Arabia, UAE, Gabon, Angola, Kuwait, Qatar etc in relation to their crude oil exports!? Almost all them have population that is less than Lagos state!! The best Nigeria would have done is to allow states with oil to control it while paying certain percentage as tax to FG while every other state is encouraged to survive on what it has while FG augments them with the extra gotten from the tax on oil states. You will see that Nigeria would have long become a real giant. We would have been a net exporter of agricultural produce, manufactured goods, tourism, commerce etc because every part of the country would have been productive rather than lazy and idle. You will be traveling in the north and you will see massive acres of land lying idle. Even the solid minerals are being mined and stolen by foreigners like the Chinese, Indians, Lebanese etc while everyone is fixated on oil money that is not even enough to pay salaries anymore after embezzlements. Are countries without oil not surviving and even doing far better than us? Nigeria as it is like a father who tells all his grown up children to stay at home without working because he is fully employed. Now, regardless of how much he earns, it will never be enough for them and the father would be at risk of dying out of too much stress, but if only he forces all of his children to work while he helps them whenever they have problems beyond their control, you will see that the family will be rich and very buoyant. Nigeria will collapse sooner than later because of the foolishness of the Northern elite who are too lazy, selfish and fixated on oil money while neglecting their region. More terror groups like Boko Haram will spring up in the north, fulani herdsmen terrorism will get worse, Biafran separatists groups will continue to grow in numbers and popularity, militancy threats in the Niger Delta will always be there, Yorubas will continue to feel threatened by the large number of Igbos taking over Lagos and all these are time bombs that will certainly lead to a serious crises.