By Babajide Komolafe
LAGOS — Nigeria’s public debt shot up by 36.8 per cent to $35.3 billion in 2010, even as the Debt Management Office assures that the nation’s debt position is healthy.
He said the nation’s total debt stock as at end of 2010 stood at $4.7 billion for external debt and N4.5 trillion for domestic debt.
This translates to a total debt stock of $35.3 billion for the year, which indicates 36.8 per cent increase when compared with the $25.8 billion total debt stock for 2009.
Further analysis indicates that the external debt stock rose by 29 per cent to $4.7 billion from $3.94 billion, while the domestic debt stock rose by 40 per cent to N4.5 trillion from N3.2 trillion.
Nwankwo, however, assured that the nation’s debt position is healthy as the debt-to-gross domestic product (GDP) ratio is 19 per cent far below the threshold of 40 per cent recommended for developing countries like Nigeria.
He said in addition to this, the external debts are mostly concessionary debt with tenure of 35 year, and moratorium of 10 years, which means the country would not begin to repay the debt until after 11 years.
He added that this indicated strength for the countries debt portfolio, the external debts were booked on favourable terms, and this is very important as the projects financed with the proceeds of the debt have long gestation.
Responding to the observation of the Monetary Policy Committee, MPC, of the Central Bank of Nigeria, CBN, that government through its borrowing activities is crowding-out credit to the private sector, Nwankwo said while in every economy there is the potential for government to crowd-out the private sector, that potential had not materialised in Nigeria.
The MPC in a communiqué issued at the end of its 74th meeting Tuesday called for restraint on debt-financed government spending, saying this fuels inflation and impedes flow of credit to the private sector.
In its review of the economy in 2010, the MPC noted that while credit to the three tiers of government grew by 67.83 per cent, credit to the private sector contracted by 4.92 per.
“The growth in credit to the three tiers of government against the backdrop of the decline in private sector credit is a reflection of the fact that government borrowing had to some extent crowded out private sector credit.
He said what happened was that the financial crisis caused banks to stop lending to the private sector, and this led to a recession.
“To counter the effect of this recession on the economy, governments over the world increased borrowing to increase spending. And that was what happened in Nigeria and what was responsible for the increase in the domestic debt between 2008 and 2010.
“But government is aware that it must not crowd-out the private sector and hence intends to strategically reduce borrowing to creating space for the private sector,” he said.
He said, for example, the debt to GDP ratio for the 2011 budget was reduced to 3.6 per cent, from 6.6 per cent in 2010, adding that this indicates that government appreciates the need to roll back borrowing.
He said the tax break for income on corporate bonds is also another indication that government is creating space for private sector in the flow of credit.