External and Domestic Debts: Debt Profile of Edo and other South-South States
By June 2017, the nation’s total debt had climbed to N19.63tn, according to the latest debt statistics obtained from the Debt Management Office. The debt stock data released by the DMO revealed that the total public debt stock (external and domestic debt stock of the Federal Government and sub-nationals) as of the end of June was N19.63tn (about $64.19bn at N305.9/$1), made up of external debt stock of N4.6tn (about $15.05bn) and domestic debt stock of N15.03tn (about $49.15bn).
The DMO said in a statement posted on its portal recently, “The domestic debt stock of the Federal Government and sub-nationals accounted for 76.56 per cent of the total public debt stock, while their external debt stock accounted for 23.44 per cent. “Furthermore, the total public debt stock increased by 2.5 per cent from N19.16tn (about $62.54bn) to N19.64tn (about $64.19bn), during the period under review. “The total external public debt stock of the Federal Government and sub-nationals increased by 8.98 per cent from $13.81bn in March 2017 to $15.05bn in June 2017, while the domestic debt stock of the Federal Government and the sub-nationals increased by 0.67 per cent from N14.93tn in March 2017 to N15.03tn in June 2017.”
The external debt balance of both the federal and state governments stood at $10.32bn as of June 2015 compared to the $15.05bn recorded as of the end of June this year. This means that within the period, the country’s external debt portfolio had risen by $4.73bn or 45.83 per cent. The increasing proportion of the foreign debt component reflects a new debt management strategy released by the DMO recently. It also reflects a strategy to reduce high interest payment occasioned by much dependence of domestic debts.
According to the DMO, the country’s new debt management strategy entails balancing the sources of debt to ensure that more resources are borrowed from external sources where the interest rate is seen as lower than interest rates on borrowings from domestic sources. The Debt Management Strategy 2016-2019 targets the rebalancing of the debt portfolio from its composition of 84:16 (domestic to foreign) to 60:40 by the end of December 2019 (domestic to foreign).
“It supports the use of more external finance for funding capital projects, in line with the focus of the present administration on speeding up infrastructural development in the country, by substituting the relatively expensive domestic borrowing in favour of cheaper external financing,” the DMO said.
The DMO said the move was informed by the lower dollar interest rates in the international capital market, adding that Nigeria was expected to borrow at a rate not higher than six per cent, while issuances of the NTBs in the domestic market were at rates as high as 18.53 per cent. According to the office, external borrowing is cheaper by about 12 points and will result in substantial cost savings for the Federal Government in debt service costs.
The last Nigeria Extractive Industries Transparency Initiative (NEITI) Quarterly Review showed debt profile and a drastic drop in the revenue profile of most states of the federation. In South-South States Edo State has the lowest cumulative debt (both foreign and domestic) of N94 billion, Bayelsa State with cumulative debt of N116 billion, Rivers State with a cumulative debt of N147billion,Akwa Ibom with a cumulative debt of N162 bilion Cross River State with cumulative of N154billion and Delta State with a cumulative debt of N332 billion, According to NEITI report, Edo State has the lowest debt profile in the South-South. The debt profile of the state governments, NEITI observed, were on the increase; consisting of domestic and external debts. For instance, Lagos state has the highest cumulative debt of N603.25 billion as against the state’s revenue of N410.5bn for 2016. The second on the debt table is Delta state with N331.95 billion growing debt as against N142.78 of the state revenue. Akwa Ibom states took the fourth place on rising debt profiles with N161.23billion . NEITI has clearly vindicated Edo State on both domestic and foreign debt. The World Bank loan Edo State took is cheaper to service and attracts about 1% interest rate compare to domestic borrowing that attracts 18% interest rate.
The cases of Cross River and Delta states raised major concerns in the debt analyses giving the fact that their total borrowings over the years were found to have more than doubled the total revenues accruing to them in 2016. The report maintained that “Considering that most states already have a high debt burden, the possibility of even higher debts for the states remain quite high.”
In a document titled “Nigeria’s Debt Management Strategy 2016-19”, the Debt Management Office (DMO) expressed concern on the high risk collateral of servicing and refinancing the nation’s domestic debt stock of N15.03tn (about $49.15bn).
The DG explained that the debt stock data released by the DMO revealed that the total public debt stock (external and domestic debt stock of the Federal Government and sub-nationals) as of the end of June was N19.63tn (about $64.19bn), made up of external debt stock of N4.6tn (about $15.05bn) and domestic debt stock of N15.03tn (about $49.15bn).
The DMO said in a statement posted on its portal recently, “The domestic debt stock of the Federal Government and sub-nationals accounted for 76.56 per cent of the total public debt stock, while their external debt stock accounted for 23.44 per cent. Among the subnational governments, Lagos, Kaduna, Edo, Cross River and Ogun states retained the top spots on the list of foreign debtors. If Nigeria external debt accounts for 23% of Nigeria debt profile, how does Edo debt constitutes one of the highest? Is 23% more than 77%? Is the external debt stock of N4.6tn (about $15.05bn) more than domestic debt stock of N15.03tn (about $49.15bn)?
I am worried that instead of analysts to discuss Nigeria’s domestic debt which accounts for 77% of Nigeria debt profile and attract 18% interest rate, most of the analysts always end up discussing Nigeria’s external debt that accounts for just 23% of Nigeria’s debt profile. This is my position, total debt profile of Federal Government and sub-nationals) as of the end of June was N19.63tn (about $64.19bn at N305.9/$1), made up of external debt stock of N4.6tn (about $15.05bn) and domestic debt stock of N15.03tn (about $49.15bn).
How the external debt of 23% does now amounts to the highest? Analysts should stop to categorize Edo State as one the most indebted states in Nigeria. The rate of the rise in foreign debt has been slower than that of domestic debt. In recent times, the Federal Government has been making attempts to increase the proportion of foreign debt, because of the higher interest rate charged on domestic debts.
Edo state is just as privileged as Lagos state in Sub-Saharan Africa, to access World Bank loans at less than 1% for 20 years, and in some cases, 10 years moratorium.
For a shared understanding of Nigeria’s domestic debt, a major source of concern is that Nigeria’s public domestic debt has experienced rapid growth over the past ten years and that debt service outlay is quite high. The domestic debt-GDP ratio is only about 10%; the total public debt-GDP ratio is 12.25%, and compares favourably with the peer group threshold of 56%.
Although the debt service-revenue ratio is high, the problem needs to be unbundled so we can all agree on the appropriate solution path. Indeed, following the rebasing of Nigeria’s GDP in 2010, the DMO observed that the increase in the GDP did not enhance the country’s ability to service its debts. Nigeria’s tax revenue-GDP ratio is still below 6% compared to the average for the country’s peer group, which is 18%. Essentially, therefore, from this perspective, what is being experienced is a revenue problem which impacts the debt service-revenue ratio.
In a medium term project from 2016 to 2019 setting out the broad guidelines for four years, a review of the new debt strategy shows that it would slant significantly in favour of external borrowing than domestic borrowing. Director General of the DMO has said domestic and external borrowings would now be in the ratio of 60:40 per cent as against the previous ration of 84:16 per cent respectively.