Nigeria spends $398.7m on debt servicing in 4 months – CBN

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Story by Kayode Tokede

The Central Bank of Nigeria (CBN) has disclosed that a sum of $398.7 million was spent by the federal government on Debt Services/Payments between January and April 2019

The data by CBN however, did not specifically mention if the debt services/payment were used to service Treasury Bills, Bond and Eurobond.

The breakdown revealed that CBN’s debt services/payment in January stood at $65.44 million but increased to $193.4million in February.

The data from CBN revealed that Debt Service/Payment moved to $95.75 million in March and close April at $44.05million.

Data obtained from CBN revealed that debt services/payment in first four months of 2018 was around $249.9million while the total debt services/payment in 2018 according to CBN was at $1.47 billion.

The ministry of budget and national planning had said debt serving for 2019 is N2.14 trillion, 24.24 per cent of federal government planned spending.

The bankers committee of the CBN expressed concern and sympathises with the fiscal authorities, over the growing fiscal deficit, external debt and debt service, and urged the need to closely monitor the public procurement process in order to improve efficiency in public resource management.

A member of the committee, Dr. Robert Chikwendu in his statement at the last Monetary Policy Meeting (MPC) which was held in March said, “The elevated public debt levels especially those arising from the external bond issuances are likely to limit the country’s ability to aggressively pursue growth, whilst containing any inflationary pressures.

“As at 31st December 2018, there was a 12.25 per cent year-on-year growth for total public debt. While the share of domestic debt has dropped in favour of external debt as part of government’s strategy, the preference for external bond issuances (which is popular among international investors who permanently maintain a search for yield behaviour) rather than concessional external borrowing from bilateral and multilateral windows raises key sustainability concerns.”

“It is imperative that fiscal policy in Nigeria should continually ensure that debt levels remain less elevated, highly concessional, and sustainable and that recurrent expenditures are constantly rationalized.

Another member, Mike Idiah said, “The federal government’s actual fiscal deficit has continued to widen and concurrently, the debt level and debt service have continued to rise.

“A major driver of the deepening fiscal deficit and debt levels is the under-performance in revenue generation largely due to non-diversification of revenue and continuing weakness in domestic economic performance in spite of slight recovery in the international price of crude oil. Another major concern is the rapidly growing cost of debt servicing, fuelled by increasing public debts with the potential for crowding out the private sector.”

“he urged the government to step up domestic revenue mobilisation and significantly reduce the pace of external debt accumulation because of the challenges of rising external debt servicing, as well as interest rate and exchange rate shocks.

“The proposed increase in Value Added Tax (VAT) is in the right direction,” he added.

The Managing Director, Cowry Assets Management Limited, Mr. Johnson Chukwu had, the apex bank borrowed from the public with the issuing of Treasury Bills and a certain debt services must be rendered on those borrowed funds.

According to him, “The CBN borrowed from the investing public by the issuing of Treasury Bills. Those money market instruments’ have cost. The debt service/payment reported by CBN might be linked to Treasury Bills and short terms instrument they mopped out from the system.”

He noted that higher borrowing by federal government tends to crowd out private sector.

“When government is borrowing at a high interest rate, there is no motivation for banks to lend to private sector.  Besides, it led to high cost   of credit in the economy,” he added.

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