Business
FG spends N604.19bn on domestic debt service
By Kayode Tokede
A report by the National Bureau of Statistics (NBS) has disclosed that Federal government spent N604.19billion to service domestic debt between July and September (Q3) of 2020.
The breakdown revealed that the federal government actual domestic debt service for Q3 2020 on NTBs was N97.64billion as against N43.63billion reported in Q3 2019, while interest on debt service of FBN bond was N488.5billion between July to September of 2020.
In addition, N9.38billion was interest on Treasury bond debt service, N365.65million on FGN saving bond and N8.28billion on FBN Sukuk as of Q3 2020.
The NBS disclosed that Nigerian States and federal government total public debt portfolio stood at N32.22trillion or $84.6billion as of third quarter ended September 30, 2020.
The “Nigerian domestic and foreign debt” report released by NBS on Wednesday stated, Nigeria’s total public debt showed that N12.19trillion or 37.82per cent of the debt was external while N20.04trillion or 62.18per cent of the debt was domestic.
The report stated that “Further disaggregation of Nigeria’s foreign debt showed that $16.74billion of the debt was multilateral; $502.38million was bilateral (AFD) and another $3.26billion bilateral from the Exim Bank of China, JICA, India, and KFW while $11.17billion was commercial which are Eurobonds and Diaspora Bonds.”
The report stated that FGN total external debt as of Q3 2020 was N12.19 trillion or $31.99billion while FGN and states & FCT total domestic debt was N20.04trillion or $52.6billion as of Q3 2020.
From the NBS report, the FGN total external debt was N8.27trillion or $26.94billion as of Q3 2019, while FGN, States and FCT domestic debt was N17.94trillion or $58.45billion as of Q3 2019.
This brings total public debt by FGN and states to N26.21trillion or $85.39billion as of Q3 2019.
The NBS domestic debt stock by instrument as at September 30, 2020 revealed that 73.53 per cent or N11.65trillion was borrowed through FBN bonds; 17.17 per cent or N2.72trillion through the Nigerian Treasury Bills (NTBs) and 2.29 per cent or N362.56billion through FGN Sukuk.
Others are 6.13 per cent or N971.88billion through promissory notes, 0.64 per cent or N100.99billion through Nigerian treasury bonds, 0.16 per cent or N25.69billion through green bond; and 0.08 per cent through N12.56 billion through FGN Saving bond.
The report stated that a total of N15.85trillion was the domestic debt stock by instrument as at Q3 2020 as against N13.9 trillion reported in Q3 2019.
Nigeria’s debt profile continued to snowball and its attendant cost is worrisome as members of the CBN’s Monetary Policy Committee (MPC) noted the rising burden of debt services.
They had urged the federal authority to strengthen its debt management strategy, explore other sources of revenue, as well as enhance efficiency in public expenditure.
A member of the MPC, a professor at the University of Ibadan, Festus Adenikinju in his personal statement, said “The fiscal system continues to pose significant challenges arising from current underperformance of government revenue, unrestraint growth in government recurrent expenditure, underperformance of capital expenditure and rising debt service ratio.
“Debt service rate rose to 84.1 per cent of government revenue between January and August 2020 compared to 51.5 per cent in January to August of 2019.”
The country pays a lump sum to several external organizations that grant loans to it, and these include the World Bank, African Development Bank (AfDB), Exim Bank of China, Exim Bank of India and so on.
In 2015, which marked the start of President Muhammadu Buhari’s first term administration in office, Nigeria paid $16.34 billion to service debt payment.
Fast forward to 2018, the sum of $13.74 billion was recorded while $21.22billion was paid in 2019.
The budget office of the federation in a report stated that “Total debt service in the half year of 2020 stood at N1.1trllion indicating a decrease of N234.04 billion (17.47 percent) from the N1.34trillion projected for the half year period.
“The sum of N853.61 billion was used for domestic debt servicing while N251.76 billion was spent for external debt servicing during the period under review. The amount used for domestic debt servicing revealed a difference of N83.06 billion (8.87 percent) from its half year projection.”
Experts continue to stress that while the country’s debt to GDP ratio is sustainable for now, the cost of servicing the debt eats deep into the country’s already depleting revenue.
Critics of the government have complained about the government’s penchant for debts, believing that it could put the future of younger Nigerians in jeopardy.
The Deputy Governor, Financial System Stability, CBN, Mrs. Aisha Ahmad, started that, “low oil prices, muted fiscal revenues and significant debt service obligations have dramatically restricted the already fragile fiscal space.
“Further fiscal adjustments will be required to curtail rising public debt and budget deficit, in addition to prioritization of government spending to support the Economic Sustainability Plan (ESP).”
AfDB early in the year said debt servicing gulps more than 50 per cent of Nigeria’s revenue.
The bank, which said this in its West Africa Economic Outlook last year, said the servicing of the country’s external debt gulped about 50 per cent of the country’s revenue.
According to AfDB, the average revenue spent by West African countries on external debt servicing is 17 per cent. This is high and even higher in Nigeria which spends about 50 per cent revenue on external debt servicing. It added that with the increasing domestic debt burden, the percentage of revenues spent on debt servicing in Nigeria was even higher.
The bank said that even though the country’s debt burden had increased by as much as 128 per cent in the last eight years, Nigeria’s debt to Gross Domestic Product remained low.
The low debt-to-GDP ratio notwithstanding, it added, the problem with the nation’s increasing debt burden was the high proportion of revenue spent on debt servicing.
It said, “Cape Verde had the highest external debt-to-GDP ratio in 2018, an estimated 103 per cent, followed by Senegal, Niger, and Sierra Leone. Liberia had the highest rate of debt accumulation between 2010 and 2018, at 329 per cent, followed by Nigeria at 128 per cent.
“Despite the increase, Nigeria still has one of the lowest external debt-to-GDP ratios, at 15.2 per cent. Benin, Guinea-Bissau and Togo also have a ratio below 25 per cent.
“The rapid increase in external indebtedness remains a challenge, especially given the shift toward non-concessional external debt. Debt service payments have also increased since 2010 and are projected to remain high in the medium term.”
The bank added, “The increase has heightened the fiscal burden in an already fiscally and growth-constrained environment. This raises important concerns regarding the sustainability of external debt. West African countries spend an average of 17 per cent of revenue on servicing external debt.
“In Nigeria, about half of the revenue is used to service external debt. The increasing domestic debt burden means that the total proportion of the revenue spent on servicing debt is even higher. In a country where only six per cent of GDP is collected in revenue, the high burden of debt service is a major concern.”
The Central Bank of Nigeria has directed all Deposit Money Banks to deposit their excess foreign currency notes with its branches in Lagos and Abuja.
The apex bank disclosed this in a fresh circular on Friday signed by Solaja Mohammed Olayemi, its acting Director of the Currency Operations Department.
CBN said this is to boost FX liquidity and attain convergence in the exchange rates of the parallel and official markets.
CBN said guidelines become necessary in response to increased demand by DMBs to deposit their forex cash with CBN for credit to their respective offshore accounts.
“The approval is a response to the increasing demand by DMBs to deposit their forex cash with CBN for onward credit to their offshore accounts with the correspondent banks.
“Consequently, all DMBs are hereby directed to adhere strictly to the following guidelines: Give at least three (3) working days’ notice of their intent to deposit forex cash, in writing to the Branch Controller, CBN Lagos or Abuja. This must be accompanied by the list of owners of foreign currency to be deposited.
“All deposits must be within the threshold of the following per day: USD higher bills (USD100 and USD50) maximum limit of USD10 million, USD lower bills (USD20 and below) maximum limit of USD1 million, GBP notes maximum limit of GBP1 million, EURO notes maximum limit of EUR1 million. Two (2) representatives of the depositing bank must be present to witness and confirm the amount to be deposited.
“Deposits may be in USD100, USD50, USD20, USD10, USD5, USD1 and all GBP and EURO denominations. Each denomination shall be in separate boxes.
“The DMBs shall engage the services of only CBN-registered CIT companies for deposits of foreign currency notes.
“The time for accepting deposits shall be between 8 am and 12 pm.
“Abuja and Lagos branches would receive, count, and authenticate such deposits in the presence of the representatives of the depositing bank on the same day.
“The Bank shall credit the DMBs’ account through their offshore correspondent bank within the cycle time of T+5.
“The handling charge of 0.30 percent of the authenticated amount shall be recovered from the DMB current account with CBN.
“The Bank would not accept forex deposits from any DMB that fails to comply with any of the guidelines. Please note that these guidelines are effective immediately.
“This circular supersedes the circular Ref. No. COD/DIR/GEN/CMI/11/094 of 17th July 2017,” CBN stated.
Recall that the Naira traded at N1505.30 and N1515 against the Dollar at the official and parallel foreign exchange markets on Friday.
African Export-Import Bank has signed a Memorandum of Understanding (MoU) with the World Trade Organisation (WTO) to amplify the impact of their strategically aligned joint efforts of promoting global trade.
A statement issued by Vincent Musumba, Afreximbank’s Manager, Communications and Events, said the two organisations would promote global trade by leveraging Africa’s unique resource endowment.
Musumba said the MoU would allow the two organisations to pursue a collaborative framework for harmonising and coordinating their efforts towards deepening key trade development activities on the continent.
He said Afreximbank and the WTO are part of an inter-agency partnership championing transformative change in the cotton industry in Africa’s Cotton-4 plus (C4+) countries.
Musumba said the countries include Benin, Burkina Faso, Chad, Mali and Côte d’Ivoire as an observer.
“The MoU will afford the bank and the WTO Secretariat the opportunity to expand and deepen their collaboration to support the cotton sector beyond the C4+ countries.
“Their support will entail the development of local and regional value chains of cotton in Africa as well as their integration into the global value chain.”
He said another area of collaboration under the understanding would be on Trade Finance matters, addressing non-tariff barriers to trade, and the digital economy.
“Others are capacity building, the oceans’ economic and fisheries subsidies, the sports and creative economies and trading in the context of the African Continental Free Trade Agreement.”
Musumba quoted Prof. Benedict Oramah, President and Chairman of the Board of Directors, Afreximbank, who spoke at the MoU signing ceremony as saying:
“The WTO Secretariat is a natural partner to Afreximbank given our shared mandate of promoting trade and trade-related activities.
“We are already working with the Secretariat on FIFA’s C4+ Cotton Initiative, for which we have committed financing for project preparation for cotton transformation projects in Africa.
“ Formalising our relationship today signifies that we can go beyond our present collaboration to include other equally impactful interventions across key economic sectors in Africa.”
Oramah said Afreximbank recently signed a Charter with Confédération Africaine de Football (CAF) and the Rebranding Africa Forum (RAF) to build a robust sports economy.
He said the Charter would include commercialising and monetising African-made sports apparel and athleisure wear.
“This is yet another undertaking that will benefit from this MOU with the WTO Secretariat,” he said.
He quoted Dr Ngozi Okonjo-Iweala, Director-General, WTO Secretariat as saying, “the signing of this MOU is timely as it reflects some of the key priorities of many of our Members.
“ I am particularly pleased to see that it will support Members’ efforts in agriculture and food security, advance efforts to address harmful fisheries subsidies and promote cooperation on trade finance.
“ I am especially pleased that Afreximbank has committed to explore the opening of a finance window that would assist the C4+ countries on their journey to scale value addition on the continent.
“ I look forward to seeing real, on-the-ground results from this partnership,” she said.
Musumba said the C4+ countries have historically exported raw cotton for processing outside of the continent.
He said developing local industries to process and transform cotton into textile, could potentially create 500,000 jobs in the West African region.
Musumba said if harnessed well, it was expected that within the next 10 years, the C4+ countries could process up to 25 per cent of their cotton crops.
“This undertaking requires about five billion dollars in investment in production facilities and training for workers.
“Which in turn calls for capacity building, access to finance for businesses, and improved infrastructure”.
The Chairman of Nigeria’s Presidential Fiscal Policy and Tax Reforms Committee, Taiwo Oyedele believes Nigeria can significantly boost its revenue without imposing new taxes.
Instead, he advocates for better tax administration and the use of technology to close the estimated N20 trillion tax gap.
In an interview on Channels Television’s station on Friday, Oyedele emphasised that the committee’s work focuses on transformative fiscal reforms driven by evidence and wide consultation.
“We’ve done a lot of work, quite extensive and far-reaching,” he remarked. We have ve consulted widely, including with governors, federal revenue services, and primary sector stakeholders,” he said.
The Presidential Committee on Fiscal and Tax Reforms, was established to review and reform Nigeria’s fiscal and tax policies, aiming to enhance efficiency, increase revenue, promote economic growth, and reduce poverty.
The committee’s objectives include reviewing tax laws, identifying new revenue sources, developing a national fiscal policy, harmonizing tax policies, improving tax administration, enhancing transparency, promoting economic diversification, and encouraging private sector investment.
The committee’s work is expected to lead to a more effective fiscal and tax system, improving the overall well-being of Nigerians.
Regarding the pace of fiscal reforms compared to monetary policy, Oyedele explained, “Fiscal reform cannot be as rapid as monetary policy. It requires evidence-driven policies and extensive consultation to ensure accurate diagnosis and effective prescriptions.”
He further disclosed that some recommendations, including a new tax regime offering relief to small businesses and easing capital constraints, have already been implemented.
These measures, signed by the Ministers of Finance and Economy, Wale Edun are designed to stimulate growth amid current economic challenges.
When asked about generating more revenue without increasing taxes, Oyedele expressed optimism.
“We have over 60 different taxes and levies but haven’t collected enough to adequately fund infrastructure like roads,” he noted.
“Instead of introducing new taxes, we advocate consolidating and harmonizing existing ones,” he added.
Oyedele stressed the importance of leveraging data intelligence and technology to close tax gaps and ensure compliance.
“By identifying those who should be paying but aren’t, we can potentially double our revenue within two to three years,” he asserted.
He also emphasised the need for exemptions for micro-businesses and low-income earners to prevent burdening society’s most vulnerable.
Oyedele affirmed his confidence in Nigeria’s ability to mobilize revenue sustainably.
“We believe in our approach over the medium to long term by streamlining taxes and enhancing compliance through modern methods, Nigeria can unlock its economic potential without overburdening its citizens,” he said.
The committee’s proposals are expected to undergo further legislative processes in the coming weeks, aiming to pave the way for a more robust fiscal policy framework in Nigeria.
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