Fresh borrowing, naira devaluation to push Nigeria’s debts to N38trn – Analysts back Minister

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By Kayode Tokede

The debt stock is heading to N38 trillion in 2021 amid the Federal Government’s borrowing plan to finance the budget deficit, according to analysts at Cordros Capital limited.

They stated that that subtle devaluation of Naira, increase Eurobond and domestic borrowing rates are also expected to impact Nigeria’s debt cost in the year.

The Minister of Finance, Budget and National Planning, Zainab Ahmed last year hinted that the country’s  total public debts would hit N38trillion in 2021.

Cordros Capital said the firm received the fourth quarter of 2020 budget implementation report from the budget office and observed that the Federal Government of Nigeria’s fiscal deficit was wider than preliminary estimates.

Last week, the Federal Executive Council approved N895 billion supplementary budget for the year as a result of expenditure that was not initially planned or envisage, thus increased the total budget for 2021.

It said total revenue in the fourth quarter of 2020 settled at N824.87 billion, which was 38.5per cent below the budgeted amount of N1.34 trillion due to decline across major non-oil revenue sources.

In the period, corporate income tax underperformed government expectation 25.8per cent, value added tax dropped 14per cent and the Federal Government’s share of signature bonus declined by 99.9per cent.

Analysts at Cordros Capital noted that total expenditure of N2.68 trillion during the review quarter outperformed the budgeted estimate of N2.49 trillion by 7.6per cent.

Thus, the fiscal deficit printed N1.86 trillion in the fourth quarter of 2020, bringing the actual deficit to N6.60 trillion or 4.3per cent of GDP. This was N453.13 billion above the preliminary estimate of N6.15 trillion.

“Looking ahead, we expect the recovery in economic activities to support FGN non-oil revenue amidst a price-induced increase in oil revenue.  However, we expect the government’s expansionary fiscal stance to keep expenditure elevated. Overall, we expect the 2021 fiscal deficit between N5.01 trillion and N5.42 trillion,” Cordros said.

The Debt Management Office (DMO) had revealed that Nigeria’s public debt stock increased by 0.6 per cent in the first quarter to N33.11 trillion from debt record profiled in the fourth quarter of 2020 which settled at N32.92 trillion.

Analysts highlighted that the increase in the debt stock was due to a 2.1per cent increase in domestic debt to N20.64 trillion in the first quarter of 2021 from N20.21 trillion in the final quarter of 2020.

This reflects increased bond issuance and promissory notes issued to settle the inherited arrears of the FGN to State Governments and exporters during the review period.

Meanwhile, external debt which accounted for 37.7per cent of total debt declined by 1.9per cent to N12.47 trillion or $32.86 billion in the first quarter following the redemption of the $500.00 million Eurobond.

Recall that Nigeria redeemed its $500 million Eurobond that matured in January 28, 2021.

“Barring the Securitisation of the outstanding CBN’s Ways and Means, we expect the total public debt stock to hit N37.78 trillion in 2021F in line with the additional borrowing by the States and FGN to fund their 2021 fiscal operations – estimated at N4.86 trillion,” Cordros Capital said.

On year-on-year basis, Nigeria’s debt surged 15.64per cent to N33.11 trillion from N28.63 trillion as at March 2020. The year-on-year increase in the country’s total debt stock was chiefly due to a 24.86per cent rise in external debt.

Total external debt jumped to N12.47 trillion (or $32.86 billion at N379.50/$) as at March 2021 from N9.99 trillion (or $27.67 billion at N361.00/$) in March 2020.

Cowry Asset Management said within a year, Nigeria received $3.48 billion worth of loans from International Monetary Fund (IMF) and $1.43 billion was gotten from International Development Association (IDA).

In the first quarter of the year, Nigeria paid part of its Multilateral ($81.05 million), Bilateral ($61.38 million) and Commercial loans ($500 million) which amounted to $642 million.

Hence, external debt service payments fell to N126.02 billion (or $332.07 million) in the first quarter of 2021 from N170.60 billion (or $472.57 million) printed in first quarter of 2020.

Further breakdown of the total external debt stock in the first quarter of 2021, showed that Multilateral loans accounted for 54.26per cent ($17.83 billion) of which loans from IDA was $11.09 billion, loan from IMF was $3.48 billion while others stood at $3.26 billion.

Bilateral loan accounted for 12.73per cent ($4.18 billion) of which loan from China (Exim Bank of China) was $3.40 billion and loan from France was $0.49 billion in the first quarter of 2021.

The breakdown shows that commercial loans accounted for 32.47per cent ($10.66 billion) of which Eurobonds was $10.37 billion while Diaspora bond was $0.30 billion.

However, local debt stock increased by 10.71per cent to N20.64 trillion in first quarter 2021 (from N18.64 trillion in first quarter of 2020).

A further breakdown of the domestic debt figure showed that FG’s domestic debt stock rose to N16.51 trillion in the first quarter of 2021 (from N14.53 trillion in first quarter of 2020).

Despite the significant rise in FG’s domestic loan, local debt service payment increased marginally by 0.59per cent to N612 billion in the first quarter of the year from N609.13 billion recorded in the comparable period in 2020.

The Director-General, Lagos Chamber of Commerce and Industry (LCCI), Muda Yusuf, had expressed that Nigeria’s debt profile is unsustainable.

According to Yusuf, Nigerians should be worried about the level of accumulated debt as it appears the nation lacks the capacity to service the debt.

He said, “We should be worried, particularly from the point of view of the capacity to service the debt.

“The debt to GDP argument is something that cannot stand in this type of economy because some major components of the GDP are not revenue-generating.

“Take, for instance, the agricultural sector. The agricultural sector accounts for about 23per cent of the GDP. What is the contribution of agriculture to revenue? I am not sure it is up to two per cent. The distributive trade sector accounts for about 16% of GDP. What is the contribution of that sector to revenue? It is also very low.

“So, we have a major issue with productivity of many sectors, and that is why what we should be worrying about is how to ensure that the debt situation is sustainable, and we can only do that if we relate a lot more with the capacity to service the debt.

“Currently, our capacity to service debt is very weak. And this is time for a very difficult choice to be made if we want to get out of this situation.”

He further emphasised the need to cut the cost of governance, which keeps increasing despite the drop in revenue generation.

“We need to deal with issues of cost of governance because, in all of this, revenue is dropping, it’s shrinking but the costs are still going up.

“The easiest thing to do when you have this kind of situation is to see how you can bring costs under control,” he added.