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Business News of Sunday, 2 May 2021

Source: The Nation

Nigeria’s debt stock approaches N34 trillion

Nigeria’s total debt stock is in the process of hitting N34 trillion from N33 trillion following the recent approval of a fresh foreign loan of N1.1 trillion for the federal government by the National Assembly.

In this special report, Correspondents Nduka Chiejina, Sanni Onogu and Tony Akowe capture the state of Nigeria’s debt portfolio and institutional involvement.

The latest foreign loans approved for the federal government by the Senate are $1.5 billion (about N571.5billion) and €995 million (about N528.4billion).

The loans, which are to be sourced from the World Bank and Export-Import Bank of Brazil, will be used for various purposes brought on by the COVID-19 pandemic.

Before the April 21, 2021 legislative approval, the Debt Management Office (DMO) had in the previous month put Nigeria’s Public debt at N32.915trillion as of December 31, 2020. This is made up of the debt stock of the federal and state governments as well as the Federal Capital Territory (FCT).

The DMO said at the time that “total Public Debt to Gross Domestic Product as at December 31, 2020 was 21.61 per cent, which is within Nigeria’s new limit of 40 per cent.”

Nigeria’s total debt stock before the latest legislative approvals was N32.92 trillion, of which N12.71trillion or 38.60 per cent was external while N20.21trillion or 61.40 per cent of the total debt stock was domestic.

The 36 states and the FCT have a collective domestic debt stock of N4.19trillion.

$4.06billion is owed to bilateral institutions. $11.17billion is commercial debt comprising Eurobonds and Diaspora Bonds while $186.70 is promissory notes designated.

Nigeria owes multilateral institutions like the World Bank (World Bank Group- IDA $11,123.04, IBRD $409.74.), International Monetary Funds (IMF) $3,535.23 and bilateral institutions like France (AFD) $493.71, Exim Bank of China$3,264.16, Japan (JICA) $80.20; Exim Bank of India) $37.00 and Germany (KFW) $184.32.

Some Nigerians are not comfortable with the country’s debt stock but the federal government insists that the  debt stock is sustainable and comparatively a good one.

The problem lies in servicing the debt.

Government had nothing but praise for the World Bank Group, Group of Twenty (G20) following their recent debt service suspension initiative (DSSI).

Finance, Budget and National Planning Minister Zainab Ahmed conveyed government’s position during a meeting with Abebe Selassie of the International Monetary Fund (IMF) Africa Department.

She said: “We are mindful of our experiences in this regard and the credibility and commitment of President Buhari to transparency and accountability in public expenditure.  We take note that our current debt levels are comparatively good, but we are aware of the pressures on debt services and commend the WBG and The Group of Twenty (G20) for the debt service suspension initiative (DSSI).

States and FCT domestic debt:

This is put at N4.19 trillion with Lagos State accounting for 12.15 per cent of the debt stock while Jigawa State with 0.74 per cent has the least debt stock in this category.

The federal government committed $1,556,211.63 to debt service payments between January and December 2020, paid $615.75 as penalty interest and $655.76 as differed service.

The Debt Management Office (DMO) raised a fresh Sukuk bond to the tune of N162. 557 billion via the Nigerian Stock Exchange and FMDQ Securities Exchange. The sum raised brought the total amount raised thus far through Sukuk to N362.57 billion. The Sukuk bond is devoted to financing some key infrastructure projects across the country.

Legislative approval:

Chairman of the House of Representatives Committee on Aids, Loans and Debt Management, Ahmed Safana Dayyabu, told the House that loans were  largely concessional with low interest rates and a very long moratorium and payback period, while noting that it would  not take the nation’s public debt stock outside the self-imposed ratio ceiling of 25% of debt to Gross Domestic Product.

He argued that the terms and conditions of the loan would not in any way compromise the sustainability of the Nigerian economy or impugn the integrity and independence of Nigeria as a sovereign nation.

On its part, the Senate approval came after the consideration of the report of the Senate Committee on Local and Foreign Debts on the request for external loans by the Federal Government, at plenary. Chairman of the Committee, Senator Clifford Ordia, presented the report.

President Muhammadu Buhari had, in May 2020, asked the Senate to approve the loans to finance various priority projects of the Federal Government as well as support the state governments facing fiscal challenges.

Senator Ordia explained that $1.5billion would be sourced from the World Bank to finance projects of state governments facing fiscal challenges arising from the COVID-19 pandemic.

The projects, according to Ordia, are States Fiscal Transparency, Accountability and Sustainability Programme to provide fiscal support to states (SFTAS) and COVID-19 action recovery and economic stimulus programme to support State-Level efforts to protect livelihoods, ensure food security and stimulate economic activity (N-CARES).

He said the €995 million to be sourced from the Export-Import Bank of Brazil is to finance the Federal Government’s Green Imperative Project (GIP) to enhance mechanization of agriculture and agro-process to improve food security.

According to the Committee in the report sourced by one of our correspondents, $750 million out of the $1.5 billion to be sourced from WB has a grace period of five years, 25 years tenor and an interest rate of 2.45 per cent per annum, while the balance $750 million also has a grace period of five years, 25 years tenor and an interest rate of 2.5 per cent per annum.

On the GIP component of the loan, the report said: “The Committee found that a total of six indigenous assembly plants, one in each geo-political zone, have been identified and will be rehabilitated and retooled to assemble completely knocked down (CKD) mechanization farm machinery and equipment to be imported from Brazil.

“The Committee observed that the CKD mechanization farm machinery and equipment to be imported from Brazil will be specifically adapted for local conditions with job creation opportunities for citizens.

“The Committee observed that the loan is intended to be used to deliver technological package to the small holder farmers for a fee through the establishment of service centres in each of the 774 local government areas of the federation.

“The committee further observed that the service centres will be owned and run by private business entities who will be supported to acquire various mechanization tools through favourable borrowing rates from participating commercial banks.”

On the SFTAS aspect of the loan, it added: “The Committee observed that there is an ongoing programme called States Fiscal Transparency, Accountability and Sustainability (SFTAS) programme facility in the sum of $750,000,000 funded by the World Bank currently running in all the states of the federation and the FCT.

“The Committee notes that the said financing was approved by the National Assembly in June 2020 as part of the $1,500,000,000 Development Policy Financing to part finance FGN 2020 revised budget deficit.”

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