Omokri Calls For Restraint On FG’s Borrowing Profile

President Muhammadu Buhari
President Muhammadu Buhari

An ardent Nigerian social media commentator wants President Muhammadu Buhari administration to have a rethink on the future of the country’s economy in going for more loans to finance projects.

Before now, Buhari administration had indicated its intention to obtain $2.8 billion loan to finance the 2018 budget.

In his Twitter handle Thursday, Reno Omokri, the former aide to the then President Goodluck Jonathan wrote “Not done with borrowing ₦11 trillion in three years, which is more money than the PDP borrowed in 16 years, the Buhari administration plans to take an additional $2.8 billion loan to finance the 2018 budget.

“It seems Buhari thinks borrowing more than the PDP is an achievement!”

However, under ex-President Goodluck Jonathan administration, the Federal Government borrowed a total of N2.57trillion and left a debt profile of N7 trillion.

Recall that President Buhari took over the reins of power on May 29, 2015, the debt profile from the domestic and international borrowing spree is now about N22 trillion or $73 billion.

Nigerian Tribune reported on June 28, 2018 that the leap signifies an increase of over 80 per cent in less than three years. This is quite significant because by May 29, 2015, the nation’s debt profile stood at N12.06 trillion, while between 2015 and 2017, it went up to N22trillion.

According to data from the Debt Management Office (DMO), total debt profile as of early June 2015 was approximately N12.06 trillion but Ms. Patience Oniha, Director General of the agency, told members of the National Assembly recently that as of September 2017, the debt stock for both the federal and state governments had risen to over N20.373 trillion.

In addition to this total, the Federal Government floated the $3 billion Eurobond in November 2017; N10.69 billion Green Bond in December 2017 and another $2.5 billion Eurobond early this month, all totalling another N2 trillion.

Prior to the Paris Club debt relief in 2004, Nigeria’s overall debt stock was $46.2 billion with external debt standing at $35.9 billion while the stock of the domestic debt amounted to $10.3 billion resulting in a total of about US$46.2 billion.

But between 2010 and 2014, the nation’s debt profile rose by $18.40 billion (N3 trillion) according to the analysis of DMO going from $35.09 billion; to $41.55 billion in 2011; to $48.49 billion in 2012; $54.54 billion in 2013; and $53.49 billion in 2014.

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At the 2017 World Bank/International Monetary Fund annual meetings in Washington DC, last October, both the World Bank and IMF raised the issue of Nigeria’s rising debt profile, warning of the dire consequences of this should there be a slump in the price of crude oil, Nigeria’s main foreign exchange earner.

But in her defence of the government’s strategy, Kemi Adeosun, Finance Minister, told financial journalists at the meetings in Washington that, “Nigeria’s debt-to-GDP ratio is one of the lowest. We are at 19 per cent, but most advanced countries have over 100 per cent.

“I am not saying we need to move to 100 per cent, but I am saying we need to tolerate a little more debt in the short-term to deliver the rails, the roads and power so as to generate economic activities, jobs, revenue, which would be used to pay back the debt.

“What we are trying to do is to create enough headroom to invest in capital projects that the country desperately needs. I do not think there is any Nigerian that will say we do not need to invest on power, do the roads, and that will not want us to fix 17 million housing deficits, build rails and they will generate economic activities and jobs.”

She added, “Why do we have to borrow? If you think back to the problem we face, our principal source of revenue plummeted by up to 85 per cent, so we had no choice.”

At 19 per cent, Nigeria’s debt to GDP is healthy but the real issue is the debt to revenue ratio, which is what actually determines the ability of the country to repay her debts. According to Mrs Gloria Joseph-Raji, a World Bank’ Senior Economist, Nigeria’s debt to revenue went up from 35 per cent in 2015 to 60 per cent in 2016. If without the new foreign debts Nigeria currently expends 66 per cent of her total revenue on debt servicing, leaving just 34 per cent for both capital and recurrent expenditure, what sense does it make to take more debts? What economic sense does it make to borrow more to offset existing debts?

However, the Bank for International Settlements Data regards the flurry of recent Eurobond issuance as adding to an already-record debt tally for sub-Saharan Africa, which has ballooned to over $200 billion from less than 30 billion in 2007.

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Speaking with Reuters, a news agency, Kevin Daly, Asset Manager at Standard Life Aberdeen, said, “If you have a lot of issuance in a short period of time, that tells you something.

“Maybe these guys are realising that their borrowing costs are going to potentially go higher over the course of the year if we get a continued rise in Treasury yields and further rate hikes by the Fed.”

And according to both Finance Minister Kemi Adeosun and Oniha, Nigeria intends to lift the proportion of dollar debt to 40 percent from its current level of 27 percent, to replace expensive naira bonds with 10-year interest rates as high as 14 percent.

“Nigeria is focused on reducing the cost of our debt portfolio and ensuring we have the optimal mix between domestic and international debt,” Adeosun said.

“The proceeds of the dollar issuance … will be used to re-finance domestic debt, which is high-cost and short-term, with lower-cost international debt with a longer tenure.”

Oniha on her part told Saturday Tribune that the country’s debt management policy entails that 60 per cent of borrowing should be from the domestic market, that is, Treasury Bills, FGN Bonds, Savings Bonds and then Green Bonds, and then 40 per cent should be external.

“The reason for that strategy is that, just as you diversify your investment, you also diversify your sources of funding so you are not dependent on only one source.

“The percentage of our external debt before we went to the market in November 2017 was only 23 per cent of our total public debt.

“That was even an improvement when you compare it to 2008, 2009 where over 80 per cent of our total public debt was from the domestic market.”