N1.23tr Spent to Service Domestic Debt—Report

By Modupe Gbadeyanka

An alarm has been raised by a report over the soaring cost of domestic debt service by the Federal Government in the last six years.

A report released yesterday by FBNQuest Research titled ‘soaring cost of domestic debt service’ noted that “payments have soared from N354 billion in 2010 to N1.23 trillion last year.”

The report stressed that the total debt service in the 2016 budget represented a projected 35.4 percent of total revenue by the Federal Government.

“The ratio was so dire, of course, because the record of revenue collection has been poor. In practice, collection was even poorer than forecast and the actual ratio was above 60 percent,” it explained.

FBNQuest Research said domestic payments comprise more than 90 percent of the total burden, noting that Nigeria’s external debt obligations are mostly concessional and far less costly than its Naira borrowing.

“There is a point at which this domestic debt service burden becomes unsustainable, and we are not a million miles away from it,” the report said.

The cost of issuing NTBs has soared, to the benefit of the commercial banks (the main buyers). Since August 2016, the yields on the 364-day paper at auction have settled above 22 percent (and more than doubled over 12 months), FBNQuest Research said.

It submitted that there are grounds for hope on the horizon. In the short term, the DMO’s front-loading of issuance this year has resulted in sales of FGN bonds at auction totalling N750 billion over five months. The still-to-be-signed-off 2017 budget projects net domestic borrowing of N1.25 trillion.

Secondly, it noted, the Economic Recovery and Growth Plan 2017-20 sets out a shift in borrowing strategy in line with the DMO’s medium-term paper on the subject.

“It has financing of the deficit largely external from next year, rising from 66 percent of the total in 2018 to 72 percent at the end of the plan period in 2020,” FBNQuest Research revealed.