Nigeria has borrowed N9.18 trillion ($3 billion) in 10 months for both the 2016 and 2017 budgets, Kemi Adeosun, Minister of Finance, said on Wednesday.
Adeosun’s explanation came through a statement issued by Oluyinka Akintunde, her special adviser on media.
She explained that the debts were accumulated through issuing of notes comprising $1.5 billion 10-year series and $1.5 billion 30-year series.
The minister further said that the 10-year series would bear interest at a rate of 6.5%, while the 30-year series would bear interest at a rate of 7.625%.
According to her, by raising $1.5 billion of 30-year notes, Nigeria had emulated a number of her international contemporaries, including Brazil, South Africa, Argentina and Egypt, to issue long dated debt as the basis for long term infrastructure financing and to establish a benchmark for the private sector to extend the tenure of its own financing.
She, however, did not take comparative economic analysis that shows growth differentials and key economic fundamentals especially as these economies are far recession proof and bigger.
Even though Brazil revised downward her economic growth for 2017 to 0.5 percent from 1.0 percent and forecast an expansion of 2.5 percent in 2018, it is the 8th largest economy in the world with a nominal Gross Domestic Product of $2.140 trillion of a population of 207.7 million.
While Egypt has a GDP growth projection of 4.5 percent according to the International Monetary Fund (IMF), with a nominal GDP of $336.30 billion representing 0.54 percent of the world economy of a country of 95.69 million, Turkey has a GDP growth rate of 5.5 percent with a nominal GDP size of $857.7 billion for a population of 79.51 million.
Argentina’s GDP growth rate for 2017 stands at 2.8 and it has a target of 3 percent in 2018 with a nominal GDP of $545.9 billion for a population of 43.85 million.
Nigeria has a population of 186 million with a GDP of $405.1 billion, blighted by recession, chronic balance of payment and trade deficit with unverified GDP target of 0.55 in 2017 and 2.3 percent respectively, with claims and counter claims of their predictive correctness.
But the minister justifiably said that the need for continuous borrowing was “critical to delivering an environment within which both the government and the domestic private sector can rapidly enhance its ability to fund investments in infrastructure projects and broader project finance.”
Part of the debts accumulated was spent on recurrent expenditure, with capital components of 2016 budget left unattended despite forming 100 percent of why the government floated various bonds to raise money for them.
According to the information provided by the minister, the full $1.5 billion proceeds of the 30-year notes were allocated to 2017 capital projects.
Nigeria raised a further $1.5 billion of 10-year notes, and following the current issue, the minister said, “We now have a full ‘basket’ of international debt notes, including 5-year, 10-year, 15-year and 30-year issuances trading in the market.
“This provides international investors with the full range of tradeable options in Nigeria’s international debt,” she, however, noted.
Adeosun further pointed out that of the $1.5 billion of 10-year notes, $1 billion would be allocated to the 2017 capital budget, under the current $2.5 billion approval from the National Assembly, with the balance of $500 million allocated to refinancing of domestic debt, “in line with our strategy to re-balance our domestic and international debt profile.”
Nigeria’s debt to budget stands at a whopping 40/60 percent.
Justifying this huge debt profile that keeps rising as the administration has promised to continue to borrow to finance its budget, Adeosun said, “Over the last 5 years, Nigeria has been overly focused on domestic debt, which is short term and high cost.
“This means that we pay too much and have to regularly refinance existing debt rather than having the security of longer term instruments.
“You can see this clearly reflected in our debt service to revenue ratio, which at 45% as of third quarter (Q3) 2017, is higher than we would like.
“Having returned the economy to growth in 2017 and secured a stable and liquid exchange rate regime, we are focused on addressing this issue by diversifying our sources of debt to achieve an optimal balance.
“So far, we have moved our domestic and international debt ratio from 18:82 to 23:77 and we expect this to improve to circa 27:73 by year end, with an ultimate target of 40:60.
“This will deliver significant savings in our debt service costs, with provisional estimates demonstrating savings of up to N91 billion in 2018 alone.”
She explained that the proceeds would be split between 2017 budget capital projects of $2.5 billion and re-financing some of “our short term domestic debt of $500 million.”
FG, States, LGs Share N4.55trn In Nine Months
A total sum of N4.545 trillion was disbursed as FAAC allocations between January and September 2017.
Out of this amount, N1.757 trillion was shared in the third quarter of 2017 as against N1.377 trillion and N1.411 trillion disbursed in the second and first quarters of the year, respectively.
The information is contained in the latest Quarterly Review of the Nigeria Extractive Industries Transparency Initiative (NEITI) which was signed by its Director of Communications, Orji Ogbonnaya.
The publication, which contains information and data on FAAC disbursements for the third quarter of 2017 and on mid-year budget implementation, also shows that between January and September 2017, the Federal Government received the highest allocation of N1.851.32 trillion, followed by state governments with N1.509 trillion and the 774 local governments with N913.8 billion. The sum of N271.78 billion went to DPR, Customs and the FIRS as cost of revenue collections.
Further analysis shows that the revenues shared to the federating units were higher in the third quarter of 2017 which has been the pattern for some years now.
For instance, while the Federal Government got N549.41 billion in the second quarter of 2017, third quarter figures were N752.79 billion, an increase of 37.02%. The trend is the same for the states and local governments which received N586.58 billion and N363.98 billion in the third quarter as against N467.13 billion and N280.42 billion in the second quarter, respectively. The percentage increases between the two quarters for the two tiers of government are 25.57% and 29.80%, respectively.
The review attributed the reason for the increases in FAAC disbursements to the three tiers of governments in the third quarter to what it called “positive developments in the oil sector – evident from resurgent oil prices and increased production levels. The third quarter also represents the summer season when global oil demand and consequently oil prices are generally higher than other times of the year and this could possibly explain the higher revenue accruals to the Federation Account in these third quarters”.
The NEITI Quarterly Review which based its analysis on data obtained from FAAC, National Bureau of Statistics, Federal Ministry of Finance and the Budget Office of the Federation noted that the “upward trend in the FAAC disbursements to the three tiers of governments are encouraging signs which if sustained will improve government expenditures, help to boost economic activities and move the country further away from recession”.
Another major highlight of the report is the high degree of volatility in FAAC disbursements between January and September 2017.
For example, the federal and local governments received highest revenues in July recording as much difference as 75% and 58%, respectively, between the months with the highest and lowest disbursements. State governments on the other hand got the highest allocations in September with a difference in revenues of about 53% between the high and low revenue months.
“Disbursements to the federal, states and local governments have risen and fallen in alternate months throughout the year, making economic planning and execution of capital projects difficult”, the report stated underlining the need for “diversified sources of government revenue to limit volatility and ensure more stable and predictable revenue streams.”