FG Spends N923.3bn In Servicing Domestic Debt In Q1

Debt Management

 

Just as Nigeria’s foreign debt profile is threatening to herald another debt trap, domestic debt stock is also proving to be another source for concern as the federal government spent over N923.3 billion on servicing domestic debts in the first quarter of 2018.

Nigeria’s external debt rose to $18.91 billion (N5.787 trillion) as at the end of December 2017, while domestic debt rose to N15.937 trillion, bringing the total debt stock of the country to N21.725 trillion ($70.92 billion), according to data from the Debt Management Office (DMO).

At N21.725 trillion, the country’s total debt stock rose to a new high, from N17.36 trillion ($56.73 billion) at the end of 2016.

In a document entitled: ‘Nigeria’s Debt Management Strategy 2016-2019’, the DMO stated that at least 30 percent of the nation’s domestic debt would fall due within a one-year period.

It said, “The implied interest rate was high at 10.77 per cent, due mainly to the higher interest cost on domestic debt. The portfolio is further characterised by a relatively high share of domestic debt falling due within the next one year.

“Interest rate risk is high, since maturing debt will have to be refinanced at market rates, which could be higher than interest rates on existing debt. The foreign exchange risk is relatively low given the predominance of domestic debt in the portfolio.”

A total of N643.63 billion was spent on the payment of interest, while N279.67 billion went for the redemption of matured Nigeria Treasury Bills. Similarly, the federal government paid N223.42 billion as interest on Nigerian Treasury Bills (NTBs) and N241.87 million as interest on FGN Savings Bonds.

Interest rate on FGN Bonds gulped a total of N411.8 billion in the first quarter of the year, while interest payment on the Sukuk Bond added up to N8.17 billion.

The cost of servicing the debt is a reflection of the country’s rising debt profile, especially domestic debt although efforts are being made to reduce the domestic debt commitment in favour of more foreign loans.

In accordance with this strategy, the World Bank only last week announced that it would support seven projects in the country this year with a loan of $2.1bn, while plans to borrow from other foreign sources are on.

In the first quarter of 2017, the Federal Government spent a total of N449.06 billion on the payment of interest on loans, while it paid N25 billion on the redemption of matured treasury bonds.

In effect, the government spent N194.57 billion more on interest in the first quarter of this year than it paid in the first quarter of 2017. This shows that the interest paid on domestic debt in the first quarter of this year was 40.61 percent higher than what was paid as interest in the first quarter of 2017.

A breakdown of the interest paid on domestic debt servicing in the first three months of 2017 showed that interest payment on the NTBs consumed N102.31 billion.

Also, interest payment on FGN Bonds gulped a total of N346.51 billion, while interest payment on treasury bonds consumed N241.41 million.

Rather than refinancing local debts falling due, the DMO has had to take some foreign loans to redeem some maturing local debts, which it believes come with higher interest rates.

The servicing of Nigeria’s domestic debt gulped N1.23 trillion in 2016, while it consumed a total of N1.48 billion in 2017.

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