18 February 2014

Nigeria: State's Debt Profile Hits N10 Trillion

Nigeria's total debt stock hit a total of N10.04 trillion as at December 31, 2013, indicating an increase of 33.03 per cent compared with the N7.55 trillion it was as at December 31, 2012, following massive borrowing both from the domestic market and international agencies, the Debt Management Office (DMO) has revealed.

The federal government borrowed an estimated N2.49 trillion to finance its operations in 2013, the DMO said.

Data on the public debt stock as at December 2013, released by the DMO yesterday, indicated that the external debt comprising federal government and states' debts to international multilateral agencies at N1.37 trillion ($8.82 billion at the exchange rate of N155.75/$1), accounted for 13.68 per cent of the total debt stock, while the domestic debt stock totalling N8.67 trillion accounted for 86.32 per cent of the total debt stock.

The recent data is an indication that government's borrowing remained heavily concentrated on the domestic market despite its policy target to reduce the proportion of domestic borrowing in favour of foreign debt.

The National Debt Management Framework (2013-2017) prepared by the DMO indicates the acceptable optimal ratio of domestic debt to external debt by the federal government should be 60:40, as opposed to the current distribution of about 86:14. In the third quarter, the ratio stood at 84:16.

A report from FSDH Merchant Bank Limited explained that the increase in the total debt stock compared with what it was the previous year was due to the benign interest rate environment in the international financial system.

The DMO report on actual debt service charges showed that the N794.56 billion used in servicing both the domestic and external debt stocks in 2013 increased by 10.2 per cent compared to the N721.0 billion used in 2012. The actual debt service charges also overshot the N591.76 billion provided in the 2013 Appropriation Act for debt servicing by 34.27 per cent.

Explaining the increased debt profile, minister of finance Dr Ngozi Okonjo-Iweala said that the debts were raised to help fund the budget or other domestic expenditures such as infrastructure projects as well as to settle some contractor arrears and other local liabilities which are normally handled through the budget.

She said that the external debt is owed to foreign creditors such as multilateral agencies (for example, the Africa Development Bank, the World Bank, or the Islamic Development Bank), bilateral sources (such as the China Exim Bank, the French Development Bank or the Japanese Aid Agency), or to private creditors such as investors in our Eurobonds. The domestic debt, however, is contracted within Nigerian borders, usually through bond issues which are then purchased by Nigerian banks, local pension funds, and other domestic and foreign investors.

A breakdown showed that actual debt service charges on domestic borrowing stood at N794.1 billion in 2013 while that of external debt amounted to $297,329.3 (N46.3 million) compared to N720.55 billion and $293,003.54 (N54.6 million) paid on domestic and external debts respectively in 2012.

According to the report, N93.88 billion was paid as interest on Nigerian treasury bills in 2013 compared to N310.79 billion in 2012; N464.67 billion was spent servicing the FGN Bonds 1st to 7th in 2013 compared to N354.07 billion in 2012 while N35.55 billion was used to service Treasury Bonds borrowings in 2013 as against N36.5 billion in 2012.

A further breakdown indicated that the federal government increased its external borrowing by $1.86 billion, representing an increase of 45.05 per cent to $6.005 billion in 2013 up from the $4.14 billion in 2012.

The federal government's borrowing from multilateral agencies increased to $3.52 billion in 2013 from $2.88 billion the previous year while the balance of $2.48 billion was from bilateral agencies including the China Export-Import Bank and Commercial Eurobonds offerings, indicating increase of almost 100 per cent (96.8) over the $1.26 billion in 2012.

On the other hand, state governments increased their external debt by $436 million or 18.3 per cent to $2.816 billion in 2013 from $2.38 billion in 2012.

According to the report, the top five highest borrowing states also increased their external debt profiles in 2013 compared to 2012.

For instance, Lagos State increased its debt by $326.88 million or 53.47 per cent to $938.13 million from $611.25 million in 2012. Kaduna State's debt also rose by $25.62 million or 11.87 per cent from $215.68 million to $241.3 million; Cross River's debt rose by $14.74 million or 14.44 per cent from $113.03 million to $121.96 million; while Ogun and Oyo states' rose by 7.9 and 4.5 per cent to $116.8 million and $80.2 million in 2013, from $102.06 million and $76.68 million in 2012, respectively.

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