Nigeria under excruciating pain of rising debt profile

By Odunewu Segun

As at September 2017, Nigeria’s total foreign and domestic debt stocks stood at $66.63 billion or N20.373 trillion, more worrisome is the fact that debt is now growing faster than the rate of Gross Domestic Product (GDP).

The country’s debt profile for the Federal and 36 states showed a continuous rise in the last two years, growing from $10.718 billion in 2015 to $11.406 billion in 2016, hitting $15.352 billion or N4.693 trillion in September 2017.

Details of the proposed 2018 budget also show that the government intends to spend 2.01trillion will be spent on debt servicing.

It would be recalled the Debt Management Office (DMO) which was established to centrally coordinate the management of Nigeria’s debt recently listed $300 million Diaspora Bond and $3 billion dual-tranche Eurobond issuances at the Nigerian Stock Exchange (NSE).

The agency explained that the $300m it had borrowed from Nigerians in the Diaspora was part of the $5.5bn approved for borrowing by the National Assembly.

According to DMO $2.5bn was approved for the part-financing of the deficit in the 2017 Appropriation Act. The Act makes a provision for new external borrowings of N1.068tn, an equivalent of about $3.5bn. Out of this amount, only $300m has been borrowed through the issuance of a Diaspora Bond in June 2017.

The DMO issued a 100billion 7-year debut Sukuk offer, the money raised is expected to be channeled towards the construction of some major highways across the country. The bond which was oversubscribed offered another window for the Government to raise funds to close Nigeria’s infrastructure gap.

The DMO had indicated that funds would be utilized for the construction and rehabilitation of 25 Roads across the 6 Geopolitical zones and with the conclusion of the Offer, the Federal Ministry of Power, Works and Housing can now actively commence work

The DMO also listed an N10.6 billion Green Bonds, also known as Climate Bonds, to finance projects that have a positive impact on the environment and provide a solution to climate change.

Twice in the last three decades, Nigeria has found itself in the critical situation of not being able to service or repay its domestic and foreign debt, with the potential of being declared, technically insolvent and bankrupt

According to the Director General of the Debt Management Office, Patience Oniha, the DMO’s strategy is to continuously restructure the Federal Government’s debt portfolio and replace short-tenured bonds with long tenor and high rates with lower.

However, with the current economic realities, it is important that the government should initiate a comprehensive debt servicing plan. In designing the plan, the government needs to carefully re-examine the nation’s borrowing culture with its attendant consequences.