Dangers of debt servicing on Nigeria’s 2016 budget

Positioning Nigeria for a Prosperous Future
United Bank for Africa

There are strong indications that the 2016 Federal budget may experience slow implementation due to the huge debt servicing, which has already gulped the whopping total sum of N446 billion this year alone, Debt Management Office (DMO) 2015 annual report has revealed.

The DMO report shows that the Federal Government of Nigeria (FGN) bonds debt servicing accounted for 62.41 percent of the total debt service payment, while payments in respect of the Nigerian Treasury Bills (NTBs) and Treasury Bonds were 31.83 and 5.76 percent respectively.

Whereas, this year’s budget has suffered implementation delay because of various reasons ranging from political to cash crunch issues, the Federal Ministry of Finance is yet to make any quarterly release on implementing the 2016 budget.

However, trends analysis shows a continuing rise in federal government’s domestic debt service payments from 2011 to 2015, which was attributed to the increase in domestic debt stock, as well as the higher interest rates, leading to the rise in the cost of borrowing in the domestic debt market.

In 2015 alone, the government spent N1.018 trillion to service its local debts, an amount that is N152.32 billion or 17.6 percent higher than the N865.81 billion it spent on servicing local debts in 2014.

This amount, according to data made available through the recently released 2015 Annual Report of the Debt Management Office (DMO), comprised principal repayment of N25 billion and interest payment of N993.13 billion.

Over the past five years, Nigeria has paid $25.22 billion (an estimated N5 trillion based on the old fixed exchange rate of N197/$) in repayment of loans and service charges from 2011 to 2015.

A breakdown of debt servicing in the last five years indicated that the sum of $3.781 billion was used to service debts in 2011, $4.918 billion in 2012 and $5.520 billion in 2013. For 2014 and last year, the sum of $5.500 billion and $5.499 billion respectively were paid out.

Nigeria’s current public debt, according to the report, stands at N8.837 trillion for the domestic component and $10.718 billion for the foreign stock.

Meanwhile, dealers expect the Nigeria Interbank Offered Rate (NIBOR) to be moderate as inflows – via maturing treasury bills – and expected FAAC disbursements exceed the outflows.

The Central Bank of Nigeria auctioned treasury bills worth N127.96 billion yesterday (July 20), comprising 91-day bills worth N36.78 billion, 182-day bills worth 39.17 billion and 364-day bills worth N52 billion.