The report that Nigeria’s consolidated debt has reached “astronomical levels”, that it has increased by N2.57 trillion ($16.3bn) since February 2010, generates heat and no light. On the contrary, the Federal Government’s accumulated debt is slowing down, gradually. As at the end of the third quarter of 2012, Nigeria’s fiscal debt stood at $46 billion. In addition, the external reserve and Excess Crude Account (ECA) have increased significantly, though not up to 2008 levels.
In 2011, the nation’s external debt stock increased by $1.5 billion when it issued the $500 million Eurobond and borrowed $1 billion for infrastructure.
That said, Nigeria’s debt profile is within limits, compared to 40 percent which is the international standard threshold for its peer group. Debt-to-GDP ratio is a convenient way of measuring debt burden. In other words, the higher the burden, the higher the cost of servicing the debt. The term structure and maturity profile of debt are other measures for determining whether a country can meet its obligations as and when due.
Last February, the International Monetary Fund (IMF) conducted a debt sustainability analysis of Nigeria. The analysis estimates that “government debt-to-GDP ratio would steadily increase slightly from 18 percent in 2011 to about 19¾ percent in 2014.” The report also estimates debt declining to single digits by 2023 “due to efforts of fiscal consolidation at the general government level and sustained growth assumed under the baseline scenario.”
The Fund reckons that the maturity structure of Nigeria’s domestic debt is favourable. In other words, because short-term debt accounts for 25 percent of total debt, pressure to service its debt is minimal. Besides, it means Nigeria has enough room to manoeuvre, e.g., cut costs.
This positive outlook assumes that fiscal policy will adjust to the possibility of slower economic growth or lower oil prices. If either of these should happen, $10 billion of foreign investment may seek to exit the market. The CBN does not consider this a threat because there will be $36 billion of external reserves left. Analysts argue that managers of the economy should worry if foreign investors account for one-quarter of the country’s debt stock.
The size and cost of servicing its domestic obligations have made government change thinking “in favour of cheaper priced external debt. Against this background, the FGN plans a return to the Eurobond market next year”, according to FBN Capital, an investment bank.
WSTC Financial Services Limited expects Nigeria’s exchange rate to be further enhanced in 2013 by fiscal savings and considers that government’s clear plan for domestic debt repayment, with the N100 billion sinking fund, will “moderate perceived risk on government borrowing”.
All the same, Nigerians are worried. Are these loans being used well? Time and time again we hear staggering figures but hardly ever see corresponding projects that the supposed loans were meant to fund. In Lagos, few question the N507 million that was borrowed lately. An intermodal transport system, to relieve their stress, is on their mind.