By Everest Amaefule, Abuja

Wednesday, 26 Jan 2011

Nigeria’s total debt stock now stands at about $34.6bn (N5.19tn), the Director-General, Debt Management Office, Dr. Abraham Nwankwo, has said.

Nwankwo, who disclosed this on Tuesday at an interactive session with newsmen in Abuja, noted that 86.71 per cent (N4.5tn) of the total debt was domestic.

He said much of the domestic debt was incurred through the Federal Government of Nigeria’s bonds with maturity dates ranging from three to 20 years, and issued by the DMO on monthly basis.

Justifying the level of the nation’s debt, Nwankwo said it was still within a safe range, adding that by international standards, a country like Nigeria could afford to take loans amounting to 40 per cent of its Gross Domestic Product.

He said, “As at the end of December 2010, the securitised domestic debt stock of the Federal Government stood at N4.5tn, with the long tenured bonds constituting 66.02 per cent of the domestic debt stock.

“The country’s total debt of $34.6bn as at the end of December 2010 was 19.24 per cent, which is much below the debt to GDP ratio of 40 per cent for countries within the same analysis bracket with Nigeria.”

The DMO boss said the Federal Government preferred domestic to foreign debt as a measure to deepen the country’s bond market, adding that the direction in 2011 and 2012 was to help the private sector, especially the small and medium-scale enterprises to access the bond market.

He said, “The DMO reintroduced the issuance of sovereign bonds in 2003 but started regular bond issuance in 2005 based on a programmed monthly issuance calendar.

“With external borrowing limited to concessional windows, borrowing from the domestic market became the main source of raising capital by the Federal Government for funding its activities.

“The policy shift towards the development of the domestic market was anchored on the desire to, not only finance government budget deficits, but also provide the much-needed platform for raising long-term capital for funding public and private sector projects, insulate the domestic economy from external contagion, develop the domestic capital market and provide a benchmark for pricing other financial instruments in the system in line with global best practices.”

Information obtained from the agency’s Annual Report and Statement of Accounts 2009 showed that the country spent $3.18bn on debt servicing in 2007. This increased to $4.05bn in 2008 and dropped to $2.34bn in 2009.

In terms of proportion, the domestic debt component accounted for 67.91 per cent; 88.54 per cent and 81.67 per cent of the debt servicing expenditure in 2007, 2008 and 2009, respectively.

External debt, on the other hand, accounted for 32.09 per cent, 11.46 per cent and 18.33 per cent of the total debt servicing expenses in 2007, 2008 and 2009 respectively.”

The Federal Government had earlier this month issued $500m sovereign bond in the international capital market. The bond issued in accordance with the provision of the 2010 budget would also raise the nation’s debt profile.

Nwankwo declined to speak on this, deferring to the Minister of Finance, Mr. Olusegun Aganga, whom he said would address the press presently on the outcome of the issue.

He, however, said among other objectives, the bond was intended to create a benchmark for Nigerian corporate to issue bonds in the international capital market.

According to him, another step taken by DMO to develop and deepen the bond market is the empanelling of the Primary Dealer Market Maker System and commencement of the secondary FGN bond market activities.

As at the end of December 2010, he said, the PDMMs comprised 16 deposit money banks and five discount houses. The activity of the PDMMs, he added, has led to the creation of a vibrant secondary market in the FGN bonds.

Apart from helping the Federal Government to finance the deficit contained in the 2011 budget proposal, Nwankwo said DMO would focus attention on designing products and vehicles that would attract investment from Nigerians in the Diaspora.

It would also pay attention to sustaining activities for helping the states fully implement the template of their dept management departments and to continue their domestic debt data reconstruction.

Nwakwo added, “Over the years, the DMO has made some modest progress in transforming the country’s debt portfolio into an asset for growth, development and poverty reduction but there is still much to be done.

“This is more so in the face of the global economic and financial challenges which call for not just more robust and result-oriented regulation and supervision but also strong risk management.”

Nwankwo said the concern of Nigerian citizens on the level of the nation’s debt has been taken into consideration by the Federal Government.

For this reason, he said, the deficit financing has been reduced from 6.02 per cent in 2010 to 3.62 per cent contained in the 2011 budget proposal. This will further reduce to 2.88 per cent and 2.62 per cent in 2012 and 2013 respectively.

He added that the nation’s domestic debt has not got to the level where the public sector can be said to have crowded the private sector from the debt market, adding that going forward, DMO would help the private sector to access the bond market.

Source: Punch