NIGERIA DEBT REACHES 5.5 TRILLION
Ngama dropped the hint while briefing journalists after the weekly
Federal Executive Council meeting held Wednesday. He explained that the
Council approved a medium term debt management strategy which is
expected to free more cash for domestic lending for the private sector
in the country.
He said part of the new policy is to reduce the domestic borrowing as
well as access concessionary windows and raise foreign loans which will
be used to actually pay the more expensive domestic debts.
The minister said the policy was put together by the Debt Management
Office, Central Bank, Ministry of National Planning, the World Bank, and
the National Bureau of Statistics.
The new government strategy is expected to follow the restructuring of
the high domestic debt profile, which makes it less expensive to
service. The strategy will also through a comprehensive plan exit the
corridors of high domestic debts.
Ngama explained further that Nigeria’s current foreign debt was
insignificant and would not create problems for the country as it is
just 12 per cent, with the remaining 88 per cent as domestic debt.
According to him, “We had four options. One option is to continue as we
are doing. Option (two) is to say ok, we are not going to do much but
let us borrow more of the twenty year bonds where we raise them and use
them to pay down the one year, two years and five year debts so that
space will be left for the private sector to operate, which means we are
reliving ourselves, giving ourselves time in order to retire the bonds
that will actually free some resources for us.
“The third option is to see how we can access concessionary windows or
raise cheaper foreign loans and use them to actually pay down the more
expensive domestic debts.
“Once we tilt the structure, from 84% to 16% , 84 is concessional while
the 16% is non concessional, then the domestic and foreign debt will
also tilt to that. So we can have maybe 40 percent foreign debt and 60
percent domestic debt.
“If we do that after we play it out, we are going to reduce our total
debt burden to .5% by the year 2015 and we think that is better than the
level we are today which is just 2.2%,” he said.
The minister explained that contrary to fears being expressed about
increased foreign borrowing, it would help the country. He said the
foreign borrowings would be gradual.
“When we do that we can bring a lot of benefits to the country and we
will manage the finances free and also reduce the cost of borrowing and
that mixed option is the one that the federal government approved and we
are happy for that approval.
“One thing is that we are not just going to do it overnight. We won’t
just start taking loans from abroad or selling bonds we will do it very
gradually. We are going to have a smooth transmission so that everything
is well managed and that there is no shock to the system,” he said.
The Finance Minister said at N6 trillion, Nigeria’s debt was not too high, but for the cost of servicing the debts.
“Nigeria has one of the highest interest rates in the developing world
and if you have high level of debt, then the debt servicing will become
very expensive.”
He also announced that the government was working to reduce the cost of
domestic debt servicing to bring it to as low as 0. 5 % of the Gross
Domestic Product, GDP from the current level of 2.5% of the GDP.
He listed the major factor that increased domestic debt as wage
increase to civil servants in 2010 which increased wages by as high as
54 % forcing government to borrow N3.6 trillion to pay salary; adding
that since then, federal government budget had incurred deficit of N1
trillion annually.
He gave other reasons for the high domestic debt to include non-payment
of local contractors who have executed contract not captured in the
budget, and the payment of the pension and gratuity to former staff of
NITEL.
Ngama further disclosed that in 2012 alone, the federal government had spent the sum of N699 billion to service debts.
“Government had no choice but to borrow to sustain the level of
funding. The new objective is now to reduce growth of such funds and
ensure that the rate at which the debt is increasing is decreasing.
“So, we think that the position as it is at the moment is not good for
us. We have high interest rate, high debt servicing, last year alone, we
paid about N699 billion to service the debt and that compared to the
other budgetary provision for our capital expenditure which just over a
Trillion, then you realized that we are having a disproportionate cost
of debt financing,” he said.
He reasoned that if government is allowed to do all its borrowing from
the local economy, it will stifle the access the private sector has on
facilities which will in turn affect the rate at which the economy will
grow.
Ngama also disclosed that Nigeria’s reserve is now above $53 billion.
This, he said, is made up of foreign reserve of $45 billion; excess
crude of $7 billion and Sovereign Wealth Fund of $1 billion.
