Finance

April 13, 2015

FG’s external debt, States’ debt profile on the rise

Naira-Dollar

By Omoh Gabriel

The external debt profile of states has shown that Lagos State has the highest with a profile of $1.087 billion, followed by Kaduna State with a total of $234 million. Cross River State followed closely with an external debt profile of $131.469 million. Other states with relatively large external debt are Edo $123 million, Ogun $109 million, Bauchi $87million, Enugu $62 million, Katsina $78 million, Osun $67 million and Oyo State $72 million.

naira-DollarFederal Government’s domestic debt on the other hand stood at $47.05 billion or N7.9 trillion, while those of the states stood at $10.97 billion or N1.708 trillion. Federal Government’s domestic debt is made up of N4.792 trillion bonds, N2.815 trillion Treasury bills and N296.2 billion treasury bonds.

According to figures published by the Debt Management Office in Abuja, the total debt stock of the Federal Government and the 36 states of the federation including the Federal Capital Territory amounted to N11.243 trillion or $67.726 billion. States and the Federal Capital Territory as at 31st December 2014, had a domestic debt profile of N1.707 trillion or $10.967 billion.

But as at June last year, states in the federation had a domestic debt stock of N1.551 trillion or $9.963 billion. The Federal Government’s share of the rising external debt then stood at $6.363 billion. A breakdown of the debt showed that $3.146 billion of the debt owed by states were borrowed from multilateral institution while $118.9 million were bilateral loans. In the case of the Federal Government $3.652 billion were loans sourced from multilateral institutions while a total of $2.793 billion were loans obtained from China Export-Import Bank and the funds the Federal Government raised from Eurobond.

The DMO said, however, that the Federal Government debt is sustainable as its debt sustainability analysis showed that the debt/GDP ratio was only 2.4 per cent. The bulk of the Federal Government loans were concessionary with low interests and long moratorium.

Based on the rising debt profiles of state governments, the Federal Government last year directed banks not to grant fresh loans to state governments until they got the relevant approval and clearance from the Federal Ministry of Finance. The Federal Government had defended its decision to dissuade banks from granting unsecured loans to state governments, saying it was to protect the states from excessive accumulation of debts.

The Minister of State for Finance, Bashir Yuguda, had said that the decision was not aimed at stalling the development efforts of the state governments. The Minister said that most of the states have been experiencing difficulties in servicing their existing debts and it would not be advisable to allow them take fresh loans.

Mr. Yuguda, who was delivering a lecture titled: Nigeria’s Economic Policies and Reforms: An Assessment of the Real and Informal Sectors, said the country’s overall debt profile, particularly those of the state governments, was scary.

Though he did not provide specific details then, the Minister emphasised the need for the states to continue to look inwards for other sources of revenue to pursue their development programmes.

Nigeria’s total public debt stock, external and domestic, according to the Debt Management Office, as at December 2014, stood at about $67.73 billion or N11.2 trillion, which is about N1.2 trillion higher than the 2013 figure of N10.04 trillion. A breakdown of the figures showed that external debt, including those of the states, was $9.71 billion or N1.63 trillion.

As at December 2013, the total stock of external debt was $8.821 billion indicating a rise of $556 million in the first half of 2014. But as at December 31, 2012, Federal Government’s external debt was $4.14 billion as against a total debt stock of both federal and state governments of $6.5 billion.

As at June last year, Federal Government’s borrowing from multilateral institutions amounted to $3.826 billion while loans from bilateral sources mainly China Exim Bank and Eurobond amounted to $2.537 billion. In the case of states, a total of $2.904 billion was sourced from multilateral institutions; $108.9 million was obtained as loans from bilateral sources, thus making the states’ total outstanding external debt as at June 2013, $3.013 billion.

Director-General, Debt Management Office, Dr. Abraham Nwankwo had said last year that although the debt profile had increased, he assured that the debt remained sustainable at a ratio of 12.51 to the Gross Domestic Product, GDP. The D-G also said that the managers of the nation’s debt would apply more caution in further borrowings in order not to run into the crisis of debt overhang, which the nation once suffered.

His words at the time: “The sovereign debt is doing well. Currently, our total sovereign domestic debt for both federal and states and the FCT is about N8.9 trillion and external debt is about $9.38 billion. Our current debt/GDP ratio is about 12.51 per cent which is much lower than the 56 per cent total public to GDP for countries of Nigeria’s group.

However, this is not an indication that Nigeria can afford to borrow without caution. In spite of the re-basing which means we have more capacity to borrow, we are not going to borrow without caution. In fact, we are going to be more cautious, especially because our Tax:GDP ratio is low. Many economic agents do not pay their taxes.”

Dr. Nwankwo had also said that the Eurobond initiative which commenced in 2011 with the floating of the $500 million Eurobond had positively changed the profiles of Nigerian corporate organisations and their ability to raise long-term funds from the international capital market.

The Federal Government raised additional $1 billion from the international capital market in 2013 following which several Nigerian firms, especially banks, went to the international capital market to raise funds for their operations.

According to him, six companies issued nine bonds within the last one year, from which about $3.4 billion was raised. The DMO boss said his team would ensure that the funds raised from the capital markets both at home and outside, were utilised profitably in the interest of the nation’s economy.

The D-G disclosed that the funds raised from the Eurobond had been deployed to very critical sectors of the economy, requiring urgent financing to boost the economy, especially, the electricity power, agriculture, solid minerals and the dualisation of the Airport and Kubwa roads in Abuja.

Dr. Nwankwo said that his team has managed the nation’s debt in line with the national priority needs with a view to creating full values for funds borrowed in order to ensure maximum benefits to the economy.

His words, “we have tailored the nation’s debt management in accordance with our peculiarities. We have used debt management to leverage development of the private sector and it has helped them to raise money to boost the real sector such as manufacturing, solid minerals, agriculture and electricity power supply.

“We have to develop the capital market to develop long-term debt instrument such that rather than what the banks have been used to in terms of giving out 91 day loans, we now have debt instruments of up to 20 years. We have made it possible for the companies to float their own bonds in the domestic market such that between 2005 and 2013, 23 companies raised N223 billion.

“The implication is that with operators in the real sector of the economy being able to raise long-term funds, they can expand their businesses, increase productivity and create more jobs across the country on a sustainable basis.”

In August last year, two international rating agencies, Standard & Poor’s and Moody had upgraded Nigeria’s credit rating because of improved financial stability and optimism over reforms to the banking and electricity sectors. Moody upgraded Nigeria’s rating assigning local and foreign currency issuer ratings of Ba3 to the government. Standard and Poor ratings raised its long-term foreign and local currency sovereign credit rating to BB- with a stable outlook. This is three points below investment grade, from B+. This brings its view in line with Fitch’s rating.

The three foremost rating agencies in the world have all now agreed that Nigeria is managing its resources better than before.