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In Q2 2018, Nigeria experienced a halt in its increasing debt obligations witnessed during the Buhari led administration as total public debt declined by N327.5 billion.
Recently released report by the Debt management office (DMO), of Nigeria’s public debt stock for second quarter 2018, revealed that total public debt stock declined slightly by 1.44 percent from N22.7 trillion ($74.2 billion) to N22.37 trillion ($73.2 billion).
Meanwhile Nigeria external debt increased marginally by 0.07 percent from N6.74 trillion (US$22.07bn) to N6.75 trillion (US$22.08bn) in the second quarter of 2018. Total external debt also included external borrowings of the state government which are guaranteed by the federal government of Nigeria.
The flatness in total debt stock and external debt was largely due to no issuance of Eurobond witnessed in Q2 2018.
The second quarter of 2018 did not record any issuance of dollar bonds by the federal government of Nigeria since the last issued Eurobond of US$2.5 billion as at February 2018 which saw total external debt increase by 17 percent from $18.9 billion in Q4 2017 to $22.07 billion.
The quest to spend out of the recently experienced economic recession and debt restructuring policy by the ministry of finance; borrowing more externally than domestically to take advantage of lower external lending rates, has been the major justification of increased external debt in Nigeria.
The International monetary fund stressed in the earlier released sustainability report in March that Nigeria needs to concentrate more on improving earnings from non-oil revenue sources.
IMF further stressed on the risks of lower oil prices and tighter external market conditions which are the main downside risks.
Johnson Chukwu , MD and CEO, Cowry Asset Management Limited, explained that “the major challenge is not Nigeria debt to GDP, however, our ability to service the debts as debt servicing takes about 66 percent of government revenue leaving 34 percent for recurrent and capital expenditure making it a huge burden for the country. Debt to revenue in Nigeria is beyond the comfort zone.”
“There is therefore little room for infrastructure development which means for government to develop infrastructures they have to keep borrowing.” he added.
As at the second quarter of 2015, after the Buhari led administration inception, Nigeria external debt amounted to N2.03 trillion, up 39 percent from N1.46 trillion in the second quarter of the previous year. As at Q2 2018, total external debt has conveniently doubled from US$11.26 billion in Q2 2016 to US$22.08 billion with issued Eurobonds accounting for 26 percent. Also, external debts are currently up 233 percent since Q2 2015.
However, at current level of $22.08 billion, with oil prices well above $70 per barrel, the federal government can easily service external debt from earnings accruing from oil production with less pressure on external and fiscal accounts.
“We need to be cautious of the fact that we are relying on a very volatile revenue source and we do not have ability in terms of government revenue to continue to expand or increase our debts. Therefore I don’t think Nigeria should continue to embrace foreign currency debt” Johnson added.
Meanwhile Nigeria currently has a crude oil production shortfall of 700,000 barrels per day from a budget benchmark of 2.3 million b/d. Analyst believe that this is another major risk to consider as this means the federal government currently earns below budgeted revenue from crude oil production and exportation.
“as we move closer to election periods, the volume of crude oil production volatility will increase as some political players will use crude oil production as political leverage therefore it will be wise to brace up on the possibility of crude oil production volatility during election periods.” Johnson added.
The third quarter of the year may witness increase in total external debt with recent plans of the FGN to issue more Eurobonds to finance the 1.95 budget deficit in the 2018 budget. The deficit is said to be financed by $2.8 billion through external borrowings whereas, N790 billion and N310 billion are to be financed through domestic borrowing and privatization proceeds as reported by FBNQuest.
Further breakdown of total debt stocks includes a decline in FGN domestic debts by 3 percent from N12.5 trillion to N12.1 trillion quarters on quarter, Domestic debts including the states and FCT increased by 3 percent from N3.3 trillion to N3.4 trillion quarters on quarter.
[Business Day]
