Nigeria’s debt/GDP ratio moves to 35%, edges closer to fiscal ceiling

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Following the upsurge in borrowings by the federal and state governments, the Asset Management Corporation of Nigeria (AMCON) and public agencies such as the Nigerian National Petroleum Corporation (NNPC), Nigeria’s public debt to GDP ratio has moved to 35 per cent, only 5 per cent short of the fiscal ceiling of 40 per cent, a report by FBN Capital has revealed. The Fiscal Responsibility Act 2007 sets a ceiling of 40 per cent for the public debt to GDP ratio as against a 60 per cent ceiling for the Eurozone.

According to the report, the figure for the end of 2012 was just 18.3 per cent for federal government obligations. “Once we add the borrowings of state governments, AMCON and public agencies such as the NNPC, we arrive at a public debt burden of 35 per cent at the maximum. The ratio would look still more favourable with the new national accounts series, which we expect in early 2014.

The Maastricht convergence criteria for the Eurozone set a ceiling of 60 per cent for gross government debt to GDP. With hindsight, it might appear too generous although compliance and enforcement have been generally weak (and negligible for the larger member states). In contrast to the exemplary ratio for Nigeria’s debt stock, the mounting cost of debt service has become a concern for policymakers, “said FBN Capital.

The report also showed that interest payments on the federal government domestic debt have soared from N117 billion in 2007 to N543 billion in the 2013 budget.

This, they stated, explained the small allocation for the early retirement of FGN bonds in the 2013 budget and the optimum mix of 60 to 40 for the FGN’s domestic and external obligations in the Debt Management Office (DMO) new medium-term debt strategy. The added: “An additional priority in our view should be an effort to secure “value for money” on projects for which the FGN has borrowed. The debt stock may be low but we suspect that monies borrowed could have been better deployed.”

Experts at the Oxford Business Group (OBG) had recently said Nigeria’s $1 billion Eurobond, which was recently heavily oversubscribed, underscored the bullishness of overseas investors in the country’s sustained growth. Nigeria had on July 2 closed the book on two blocs of dollar-denominated bonds worth a combined $1 billion, with the offer being oversubscribed four times its face value.

Of the two issues, the 10-year $500 million bond attracted bids of $2.26 billion, while the five-year instrument, also worth $500 million, drew bids of $1.77 billion. The initial yields were set at 6.375 per cent and 5.125 per cent on the 10- and five-year bonds, respectively.

 

Information from This Day was used in this report.

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