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Will Skyrocketing Debt be Buhari’s Landmark Legacy?

Photo Credit: Government of Nigeria

By 2023, one of the landmark legacies of the Buhari administration is likely to be a huge debt stock. The debt keeps racing upwards and the administration is not even keen at applying the breaks.

At the moment, Nigeria’s debt stock under President Muhammadu Buhari’s watch is skyrocketing to N38 trillion. This is due to the administration’s borrowing plan to finance the budget deficit.

Within this 2021, there are worries that the subtle devaluation of the weak Naira, increase Eurobond and domestic borrowing rates are impacting the country’s debt cost.

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.

Cordros Capital Limited says it received the fourth quarter of 2020 budget implementation report from the budget office and observed that the Buhari administration fiscal deficit was wider than preliminary estimates.

According to the firm, the total revenue in the fourth quarter of 2020 settled at N824.87 billion, which was 38.5% below the budgeted amount of N1.34 trillion due to declines across major non-oil revenue sources.

Within the period, corporate income tax under-performed government expectation 25.8%, value added tax dropped 14.0% and Abuja’s share of signature bonus declined by 99.9%.

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 7.6%.

In the fourth quarter of last year, the fiscal deficit printed N1.86 trillion, bringing the actual deficit to N6.60 trillion or 4.3% of GDP. This was N453.13 billion above the preliminary estimate of N6.15 trillion.

Looking ahead, Cardros says, ”we expect the recovery in economic activities to support government’s 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.”

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

The increase in the debt stock, according to analysts, was due to a 2.1% 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 Abuja to state governments and exporters during the review period.

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

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 says.

On year on year basis, Nigeria’s debt surged 15.64% 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 24.86% 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.

On its part, Cowry Asset Management says within a year, Nigeria under Buhari 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, Buhari’s Nigeria paid part of its Multilateral ($81.05 million), Bilateral ($61.38 million) and Commercial loans ($500 million) which amounted to $642 million.

Accordingly, 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.

A further breakdown of the total external debt stock in the first quarter of 2021, shows that Multilateral loans accounted for 54.26% ($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 12.73% ($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.

It shows that commercial loans accounted for 32.47% ($10.66 billion) of which Eurobonds was $10.37 billion while Diaspora bond was $0.30 billion.

In the first quarter of this year, local debt stock increased by 10.71% to N20.64 trillion (from N18.64 trillion in first quarter of 2020).

Furthermore, he 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).

In spite of the significant rise in President Buhari’s domestic loan, local debt service payment increased marginally by 0.59% to N612 billion in the first quarter of the year from N609.13 billion recorded in the comparable period in 2020.

Cowry Asset is however, expecting the country’s local debt and the annualised implicit interest rate (8.92%) to soar this year given the President Buhari’s request to the National Assembly to approve N2.34 trillion new capital raising.

Adding, it said, ”rising domestic interest rate environment witnessed in recent times will further exert upward pressure on debt service.”

Cowry Asset analysts are of the view that as Nigeria turns to IMF for more loans, the Buhari administration is likely to lean more on market-driven exchange rate policy – which may further have a pass-through effect on the inflation rate.

 

 

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