By Kayode Tokede, Lagos –
The Central Bank of Nigeria (CBN) has disclosed that an estimated N118 billion ($384.98 million at N306.4/ Dollar) has been spent by the Federal Government on debt services/payments between January and September 2017.
Out of the current N7.44 trillion federal government 2017 budget, N1.66 trillion, or 23 per cent of aggregate spending, is voted for debt servicing. In 2016 and 2015, it was N1.36 trillion and N943billion respectively, out of a budget of N6.08 trillion and N4.91trillion respectively.
The apex bank however, did not mention if the debt services/payment were used to service foreign or domestic borrowing. The Debt Management Office (DMO) had disclosed that actual external debt service payment in third quarter of 2017 was estimated at $197.3 million and it comprises of $59 million multilateral; $33.5 million bilateral and $104.69 million, Eurobonds.
The CBN continued to issue FGN Bond and Treasury Bills at a double digit yield to support federal government’s financing infrastructures as dwindling global oil price has reduced government oil revenue. The breakdown revealed that CBN’s debt services/payment in September 2017 stood at N14.17 billion ($46.3 million) from N29.84 billion ($97 million) in August, the highest this year.
Debt services/payment in July was at N16.4 billion ($53.6 million) and for May and June, that closed at N10.1 billion ($33.1 million) and N503million ($1.6 million) respectively. The data from CBN revealed that Debt Service/Payment rose to N14.4 billion ($47.05million) in March and close April at N9.96billion ($32.5million).
Meanwhile, early in the year, January to be precise, the debt services/payment stood at N15.6 billion ($50.8 million) but dropped to N6.9billion ($22.6million) in February.
The World Bank’s had expressed concern over increased debt servicing costs in relation to dwindling revenue.
The international financial institution in its Global Economic Prospects Report, said Nigeria economy growth might be tempered by huge debt servicing and foreign exchange controls.
The 2018-2020 medium term expenditure framework and fiscal strategy paper said, “Due to the decline in government revenues, the debt service payment trend is worrying, and it emphasizes the need for government to grow its revenues and reduce borrowing costs as well as borrowing.
“Of greater concern is the contribution of domestic debt service payments to the debt service ratio as domestic debt service is currently 91.3per cent of total debt service. The potential risks arising from this position are being addressed through Nigeria’s current debt management strategy.
Managing Director, Cowry Assets Management Limited, Mr. Johnson Chukwu said the apex bank borrowed from the public with the issuing of Treasury Bills and a certain debt services must be rendered on those borrowed funds.
According to him, “The CBN borrowed from the investing public by the issuing of Treasury Bills. Those money market instruments’ have cost. The debt service/payment reported by CBN might be linked to Treasury Bills and short terms instrument they mopped out from the system.
“Interest rate on Treasury Bills is around 18.5 per cent and it is not strange that CBN is paying highly on the value of borrowing.” He noted that higher borrowing by federal government tends to crowd out private sector. “When government is borrowing at a high interest rate, there is no motivation for banks to lend to private sector. Besides, it led to high cost of credit in the economy,” he added.
Head, Research and Strategy at GTI Securities Limited, Mr. Chucks Anyanwu, said that federal government borrowing has been a mixture of short term and long term from international investors. He expressed that CBN did not break the debt services/payment into different categories.
According to him, the government borrowing depends on utilizations and timely interventions. In his words, “If government borrows for developmental projects and sees it through, it is expected to add value to the economy. But if government borrows for the payment of salaries and consumption, it then becomes a problem.
“So far so good, the economy has been moving out of recession, there has been improved Gross Domestic Product (GDP), the foreign exchange market has stabilized and Inflation rate has continued to dropped. “Technically, what that means is that, federal government is doing the right thing to get the nation out of recession.”