Cardoso warns Nigeria on debt risks

• FG, states owe N139trn

• Debt rose from 2.1trn to 87trn in 24yrs

Central Bank of Nigeria (CBN) governor, Olayemi Cardoso has warned Nigeria and other developing countries to be wary of debt risks saying if left unchecked, they will hinder economic growth and prosperity.

The apex bank governor, however, said that Nigeria’s situation is stable despite the near-term risks attributed to unfavourable global market conditions and increased debt burden occasioned by the COVID-19 pandemic outbreak.

Daily Trust reports that many experts have been attributing Nigeria’s economic challenges partly to debts accrued over the years that have not translated into meaningful development.

That notwithstanding, Nigeria dedicates huge sums to servicing local and foreign debts even as leaders at national and state levels continue to borrow.

Ironically, citizens are becoming poorer by the day, especially with the removal of fuel subsidy and the massive depreciation of the naira, which have depleted the capital of many businesses and the purchasing power of the citizens.

But Cardoso said that a recent sovereign stress risk on Nigeria by the World Bank and International Monetary Fund (IMF) rated Nigeria as moderate.

He stated this in Abuja on Monday when he declared open a World Bank, IMF and West Africa Institute for Financial and Economic Management (WAIFEM) regional training on Medium Term Debt Strategy (MTDS) for Debt.

Represented by the Director of the Monetary Policy Department, Dr Mohammed Musa Tumala, he said Nigeria’s MTDS are “To ensure borrowing activities are conducted within sustainable levels, to optimise the debt portfolio for cost and risk, and to improve debt management capabilities.”

Comparing Nigeria’s case, the CBN governor said it wasn’t a pathetic one.

Nigeria is shouldering a combined debt burden (external and domestic) of N87.91trn as of the third quarter of 2023.

The Debt Management Office (DMO) in December 2023 put external debt at N31.98trn and domestic debt at N55.93trn.

Cardoso said MTDS always guided its debt management activities, the most recent being the MTDS 2020- 2023.

According to the 2024 budget, the federal government says it will spend N8.25 trillion on debt servicing. This is from the total of N27 trillion earmarked for the year.

Over the past nine years, the actual cost of debt servicing has been more than the budgeted amount.

A recent report by PwC Nigeria has said Nigeria’s rising debt service cost may affect the country’s debt servicing ability, credit rating outlook and borrowing cost.

In its 2024 Nigeria Economic Outlook report, the professional services firm projected that debt service could rise from N8.25 trillion in 2024 to N9.3 trillion in 2025 and further to N11.1 trillion in 2026.

It said the shift towards more domestic borrowing could impact the private sector, as government credit constitutes 37 per cent of net domestic credit, which saw a 28 per cent increase from January to September 2023.

FG, states owe N139trn

Daily Trust analysis indicates that Nigeria’s total debt in naira terms has nearly doubled as a result of the latest rounds of devaluation, which saw the naira move from N891/$ to 1,534/$ at the NAFEM official window.

The total debt currently stands at N139trn. The component of total debt includes foreign debt of N75.78tr ($49.39bn converted at N1, 534/$), up from N49.4trn before the latest devaluation and domestic debt of N63.23trn (old domestic debt of N55.93tn with new securitised Ways and Means of N7.3trn).

Following the latest devaluation, Nigeria’s total debt shot up by N26.3trn.

The country has a targeted 40 per cent debt to GDP ratio.

The Medium-Term Expenditure Framework and Fiscal Strategy Paper 2024-2026 recently revealed that the country’s Total Public Debt/GDP was 41.15 per cent as of June 2023.

Timeline of Nigeria’s debt stock

Statistics from the DMO showed that the Obasanjo government left a debt of N2.17 trillion for Nigeria, which includes an $18 billion write-off debt owed to the London-Paris club.

Subsequently, late President Umaru Musa Yar’Adua, who was president between 2007 and 2010, increased Nigeria’s debt from N2.17 trillion to N5.62 trillion.

Similarly, Nigeria’s debt under former President Goodluck Jonathan stood at N9.8 trillion.

In the eight years of Buhari’s administration, Nigeria’s debt profile rose from N9.8 trillion to N44 trillion according to the DMO.

With the securitisation of N23 trillion CBN loans to the federal government, Nigeria’s debt skyrocketed to N77 trillion, showing an increase of almost 700 per cent under the Buhari administration.

Fast forward to the current  administration, the Debt Management Office (DMO)  disclosed that Nigeria’s total public debt hit N87.38 trillion at the end of the third quarter of 2023.

WAIFEM task FG on hedging debt stock

Earlier in his welcome remarks, the Director-General of the West African Institute of Financial and Economic Management (WAIFEM), Dr Baba Y. Musa advised the federal government on revenue generation to hedge rising debt stock.

He said effective debt management strategies ensure a country’s borrowing is sustainable and supports its development objectives, noting that the plan must balance the need for financing against the costs and risks associated with borrowing options, including the risk of default and the potential for debt distress.

“We cannot overstate the importance of a Debt Management Strategy (DMS). First, it places debt management within the larger macroeconomic framework, ensuring effective coordination with monetary and fiscal policies over the medium-term horizon (3-5 years),” he said.

According to him: “It will cover the entire gamut of the MTDS framework and the MTDS analytical tool, including the required market inputs (primary deficit and gross financing needs, interest and exchange rates, and financing strategies) and defining and calculating the cost-risk indicators.”

In another development, the CBN in a statement by the acting director, Corporate Communications, Hakama Sidi-Ali said the apex bank on Friday, March 1, 2024, concluded a sale of government securities, issuing N1.053 trillion (US$680 million) in short-term instruments as part of its liquidity management exercise.

According to the statement, “It offered N500 billion at the Open Market Operations (OMO) auction, which was oversubscribed and eventually sold N1.053 trillion, with 79% of the total bids equivalent of US$530 million, coming from foreign investors.”

The CBN said Friday’s auction was the first since the CBN’s Monetary Policy Committee meeting, which was followed by a virtual meeting with foreign portfolio investors.