DMO pegs 2017 loan at N6.73 trillion
• Why raising funds abroad may not be
cheaper
Nigeria will be increasing its external debt by
as much as 150 per cent in the next two years
if the National Assembly approves President
Muhammadu Buhari’s plan to borrow $29.960
billion (about N9.12 trillion) within the
period.
The president’s request to the House of
Representatives yesterday explained that the
N9.12 trillion would help the country tackle
its socio-economic challenges.
In a correspondence read by the Speaker of
the House, Yakubu Dogara at the plenary
session, Buhari explained that the borrowing
would span 2016 to 2018 and be used to
implement projects across all sectors of the
economy.
The president’s move may not be unconnected
with the recommendations proposed in the
2016 Report of the Annual National Debt
Sustainability Analysis (DSA), released
yesterday by the Debts Management Office
(DMO).
Estimated at the official rate of N307.79 per
dollar and considering naira devaluation, the
real value of the country’s debt stock is N18.9
trillion ($61.45 billion). And given other
anticipated borrowings to fund the N2.2
trillion 2016 budget deficit, the fiscal plan
provided for more than N1.4 trillion for debt
servicing.
Government’s proposal for a debt deal of $30
billion (a little more than N9 trillion at official
exchange rate) will worsen the debt-servicing
to revenue ratio.
Currently, the country’s external debt profile
for both multilateral and bilateral agreements
is put at $11.3 billion (N3.19 trillion in
official rate).
The new foreign debt plan represents 62.33
per cent increase over the current foreign
obligation.
As at second quarter of 2016, a copy of the
“Actual Debt Service Payment” by the DMO
showed that under the multilateral component
of foreign debt, the country paid $33,824.73.
Of the amount, $21,864.55 represents the
principal; interest fee, $1737.04; service fee, $
10,576.33; deferred service charge, $51.48;
commitment charges $11.36 and a deduction
of waiver credit, $416.04.
This showed that for the repayment of $
21,864.55 principal, associated costs
amounting to $11,960.18 were incurred.
Of course, if this is the model of repayment or
something similar for the proposed $30 billion
debt deal, it means that the country’s debt
service bill will add hundreds of billions
yearly.
This will lead to high-risk valuation of the
country’s debt instruments, as investors will
ask for rates to offset the risks.
“I wish to refer to the above subject and to
submit that attached draft of the federal
government 2016-2018 external borrowing
plan for consideration and early approval by
the National Assembly to ensure prompt
implementation of projects,” Buhari said in his
letter to law makers yesterday.
“The projects cut across all sectors with
special emphasis on infrastructure,
agriculture, health, education, water supply,
growth and employment generation, poverty
reduction through social safety net
programmes and governance and financial
management reforms among others.
“The total of the projects and programmes
under the borrowing (rolling) plan is $29.960
billion made up of proposed projects and
programmes loan of $11.274 billion, special
national infrastructure projects of $10.686
billion, Euro bonds of $4.5 billion and Federal
Government budget support of $3.5 billion.
“I would like to underscore the fact the
projects and programmes in the borrowing
plan were selected based on positive technical
economic evaluations as well as the
contribution they would make to the socio-
economic development of the country
including employment generation and poverty
reduction and protection of the most
vulnerable and very poor segment of the
Nigerian society.”
He disclosed the projects and programmes
would be implemented in all the 36 states and
the Federal Capital Territory (FCT), Abuja.
He further stated that the resolve to embark
on the borrowing was due to the huge
infrastructure deficit currently being
experienced in the country and the enormous
financial resources required to fill the gap in
the face of dwindling resources and the
inability of annual budgetary provision to
bridge infrastructural deficit.
The president disclosed that of the amount, $
575 million would be expended on projects
comprising polio eradication support and
routine immunisation projects ($125 million),
community and social development projects ($
75 million), health programme investment]
project ($125 million), state education
programme investment project ($100 million),
youth employment and social support project
($100 million), and Fadama 111 project $50
million).
The Debt Office recommended that
government could borrow up to $22.08billion
or N6.73 trillion (N305 -$1) in 2017 alone,
representing 5.89 per cent of the estimated
Gross Domestic Product (GDP) of $374.95
billion for next year.
It said: “The maximum amount that could be
borrowed (domestic and external) by the FGN
in 2017 without violating the country-specific
threshold will be US$22.08 billion (i.e. 5.89
per cent of US$374.95 billion).” The country-
specific threshold of 19.39 per cent is based
on a net present value (NPV) of Total Public
Debt-to-GDP ratio in 2017. The guardian
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