Nigeria’s debt stock rises 8.6%
THE TOTAL DEBT STOCK of the federal government has increased to N20.0 trillion as at full year 2018, representing an 8.6 percent increase over its total debt of N18.4 trillion as at year-end 2017.
THE TOTAL DEBT STOCK of the federal government has increased to N20.0 trillion as at full year 2018, representing an 8.6 percent increase over its total debt of N18.4 trillion as at year-end 2017.
While a new debt servicing strategy introduced in 2017, by the federal government to increase external debt holdings to 40 percent and increase the proportion of long-term debt has enabled the FG to reduce the cost of debt and limit the crowding out of private sector borrowers, debt servicing costs have remained elevated, with debt service to revenue worsening to 69.2 percent as at 9M:2018 as against 61.6 percent obtained in FY:2017.
These were the observations of research analyst at Afrinvest Securities Limited who further opined that the current strategy seems to be unfavourable over the longterm if the persistent devaluation of the currency and higher interest rates on foreign debts are taken into consideration.
The Debt Management Office (DMO) in its recently published data on Nigeria’s debt profile as at Q3:2018 showed that total public debt was largely unchanged at N22.4tn ($73.2bn) from the previous quarter. In the same period, the analysts observed that the FG’s debt profile reflected some of the progress made on its debt servicing plans.
“The share of external debt increased to 35.0 percent while the share of the long-term debt is now 77.1 percent,” they said, pointing out that in Q4:2018, they estimate that the FG was closer to its target as external debt was projected at 37.4 percent of total debt.
In answering if the federal government still had room for aggressive borrowing, they said “the FG’s debt sustainability indicators are not alarming on the surface, especially considering debt to GDP at 16.2 percent, which is lower than the recommended threshold of 56.0 percent by the IMF/World Bank.”
Also, they noted that the government is still in a strong position to repay its external debt obligations as indicated by a healthy but fastgrowing external debt service to exports ratio of 46.5 percent as at 9M:2018 (below IMF threshold of 100.0%).
They however noted that the major concern remains the FG’s elevated debt servicing costs. “Without an improvement in revenues, if borrowing continues at the current pace, the government may be using all of its revenues to meet debt obligations,” they warned.
“This would reduce spending on public goods and services, which the government is expected to provide. We believe that there is still scope for improved revenues if petrol subsidies are removed and the official exchange rate moves towards the NAFEX rate of N360/$,” the researchers added.
“By our conservative estimates, the FG’s debt service to revenue could moderate to 56.2 percent from 69.2 percent as at 9M:2018 if petrol subsidies are removed. Also, the government can rein in its administrative costs to reduce spending, and in turn borrowings. We are less optimistic about this and considering the imminent minimum wage increase, we expect government finances to remain pressured,” they further observed.