10 August 2011

Nigeria: Reduce Current Debt Position, FG to Monitor

Experts in the financial service sector have warned that there is the need for the Federal Government to closely monitor the country's current debt position, to ensure that it does not surpass the commitment to a debt to Gross Domestic Product (GDP) ratio of 25 per cent.

In a report made available to THISDAY, experts at FSDH Securities Ltd. stressed that more importantly, the country's economic managers need to ensure that all debt contracted are used to promote economic growth and development via the build-up of infrastructure and provision of employment opportunities.

The experts, who warned the government of a possible volatility in the prices of crude (crude oil is Nigeria's major revenue earner), stated that the government should urgently take steps to diversify the nation's economy.

FSDH implored relevant governmental agencies to ensure full and adequate measures to achieve the optimal use of the funds accruing to the federation. The analysts noted that the recent volatility of the price of oil in the international market should be a constant reminder of the need to maximise the benefits accruing to the nation from the sale of crude oil.

According to the experts, "Meanwhile, given that the oil price volatility will persist in the foreseeable future, we are of the opinion that the call to diversify the revenue base of the economy to non-oil cannot be overstated. We think Nigeria has the potential to generate huge revenue and foreign exchange from non-oil sector if appropriate policies are implemented."

Available data from the Debt Management Office (DMO) show that Nigeria's total debt stock (addition of external and domestic debts) as at June 30, 2011 stood at N6.02 billion representing an increase of 15.19 per cent from the December 31, 2010 figure of N5.23 billion.

A breakdown of the debt stock shows that, external debt accounted for 13.59 per cent of the total debt stock at N819.37 billion, while domestic debt stock accounted for 86.41 per cent of the total debt stock at N5.21 billion.

The total public debt stock in the country as at June 2011 represents about 19.23 per cent of the GDP, as against the applicable critical limit of 40 per cent for countries in Nigeria's economic peer group. This, experts said, means that Nigeria's debt portfolio has a wide fiscal sustainability space.

The DMO had recently stated that there is commitment from the Federal Government to ensure that the total debt stock does not exceed 25 per cent of GDP.

The DMO numbers also revealed that Nigeria's total external debt stock as at June 30, 2011 stood at $5.39 billion, representing an increase of 3.27 per cent from the March 31, 2011 figure of $5.22 billion and an increase of 17.89 per cent as at December 31, 2010, figure of $4.57 billion.

According to the DMO, "The total external debt stock represents 2.61 per cent of the GDP. The breakdown of the external debt in Q2 2011 showed that 84.54 per cent was owed to Multilaterals, which includes the World Bank Group, International Fund for Agricultural Development (IFAD), African Development Bank Group (AfDB), International Development Bank (IDB) and Economic Development Fund (EDF); 6.20 per cent was owed to Non-Paris Group of creditors, and 9.26 per cent was owed to others.

"While in Q1 2011, the breakdown of the debt showed that 73.73 per cent was owed to Multilaterals; 6.69 per cent was owed to Non-Paris Group of creditors and 9.57 per cent was owed to others. As at Q2 2011, the actual external debt service payments showed that a total of $87.48 million was paid as both principal and interest service fees.

"A breakdown of the total reveals that the principal of $55.97 million contributed 63.98 per cent of the total, while interest/service fee of $31.51million contributed 36.02 per cent of the total. The contribution attributed to Multilaterals was $42.38 million (48.45 per cent), Oil warrant: $20.86million (23.85 per cent), Non Paris Group of creditors $24.22million (27.69 per cent), and Others $0.01million (0.01 per cent)," the organisation added.nig

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