Sells N1.7trn debt instruments in H1’19

By Babajide Komolafe

NIGERIA’s public debt will rise above N27 trillion this year triggered by increased Federal Government borrowing to fund the 2019 budget. The nation’s debt stock has been on a steady and sharp upward trend since 2011, due to increased borrowing by the Federal Government and depreciation of the naira.

Data by the Debt Management Office (DMO) showed that the total public debt rose by 121 percent to N12.603 trillion in 2015 from N5.66 trillion in 2011. However, from 2015 it has ballooned by 93.6 percent to N24.39 trillion in 2018.

Nigeria- map

Financial Vanguard investigations showed that this trend will continue this year pushing the national debt stock by 6.6 percent to above N27 trillion.

e-payments hit N34.02trn in Q1, 2019 — NBS(Opens in a new browser tab)

According to the 2019 Appropriation Act, the Federal Government is to spend N8.82 trillion with 18.6 percent or N1.65 to be funded through domestic and foreign borrowings.

The budget breakdown presented by the Minister of Budget and National Planning, indicated that the N1.65 trillion borrowing comprise domestic loans of N824.82 billion and foreign loans of N825.82 billion.

However, Financial Vanguard analysis of the Federal Government’s borrowing activities in the first half of 2019 (H1’19) showed that the government would likely double the N1.65 trillion stipulated in the 2019 budget, as it has already overshot the figure in its domestic borrowing instrument in the H1’19 alone.

Analysis of the various debt instruments issued by the Federal Government to borrow from the domestic market showed total domestic borrowing of N1.736 trillion in H1’19, about 6.0 percent beyond the full year, 2019 budgeted borrowing. However, this represents a decline when compared with N1.84 trillion borrowed in H1’18 through the same set of domestic debt instruments. The debt instruments are Treasury Bills, TBs, FGN bonds, FGN Savings Bonds and FGN Green Bonds.

According to the results of primary market treasury bills auction conducted by the Central Bank of Nigeria (CBN) on behalf of the DMO, FG’s borrowing through TBs dropped by 15.4 percent to N1.43 trillion in H1’19 from N1.65 trillion in H1’18. Borrowings through the monthly FGN bond auctions of the DMO rose by 66 percent to N707.3 billion in H1’19 from N425.35 billion in H1’18, while borrowings through the monthly FGN Savings bonds shot up by 75 percent to N2.31 billion in H1’19 from N1.32 billion in H1’18.

In addition to the above is the N15 billion borrowed through the Green Bond offer in June. The above indicated that the FG may end up borrowing more than N2.0 trillion from the domestic market in 2019, which when combined with the expected N824.82 billion  foreign borrowing, will push the total borrowing basket of the FG to N3 trillion at the end of the year.

When combined with the nation’s debt stock of N24.387 trillion as at end of 2018, the N3 trillion estimated FG borrowing will result to a national debt stock of above N27 trillion at the end of 2019.

The above may raise the country’s Debt Sustainability indicators namely the Debt-to-GDP ratio, which stood at 19 percent at the end of 2018, Debt Service-to-Revenue Ratio (DSRR), which stood at 66 percent at end of 2018. Already, the DSRR is trending up to 70 percent as at end H1’19.

Financial analysts, however, stressed that the major concern is the utilisation of the proceeds of the nation’s increasing debt. They argued that with the DSRR set to exceed 70 percent at the end of 2019, future debt proceeds must be deployed to projects that can help increase government revenue and hence lower the DSRR.

Productive capacity of the economy

Speaking to Financial Vanguard, Managing Director/Chief Executive, Financial Derivatives Company, Mr. Bismark Rewane, said that while the country will still need to borrow due to its various developmental needs, the issue is ensuring the loans are deployed to projects that will increase the productive capacity of the economy and also raise revenue for the government.

Also corroborating this position, Head of Research, FSDH Merchant Bank, Mr. Ayo Akinwunmi, said that Nigeria’s challenge is not about the size of the debt but the DSRR which is very high and unsustainable. He said: “In measuring the ability of a country to service her debt obligations, we look at the ratio of domestic debt service-to-federal government allocation from the federation account.

“This is where the problem lies for Nigeria. Low revenue generation makes it very difficult for the FGN to meet its debt obligations without sacrificing other important responsibilities of government. At FSDH Research, we noted that the current high debt service to revenue structure in Nigeria is unsustainably high and the high figure is due to the low revenue of the country.

“Although the strategies of the DMO and the CBN in monetary policy administration have reduced the interest burden of the government, Nigeria needs to accelerate revenue generation to enable it to meet all her debt obligations without stress.”

On the way forward, Akinwunmi said that the country must diversify her revenue and create multiple sources.

He stated: “Just as FSDH Research has suggested several times in our previous reports, there is an urgent need to expand the revenue base of the country through the growth of the non-oil sector.

“We suggest that the government should adopt strategies to increase and broaden its revenue. Some of these strategies include an increase in the tax base of the country (apart from an increase in the tax rate), removal of all administrative delays in obtaining licences and approvals (including titles to landed properties for building and agricultural purposes), the sale of unprofitable government assets and, removal of subsidies on electricity and Premium Motor Spirit (PMS).

“In addition, we emphasize that borrowing should be tied to specific projects that can improve the competitiveness of the country, such as the FGN Sukuk Bond.”

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