• Thursday, December 07, 2023
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Debt finance cost at 50 percent of capital budget unsustainable


While Nigeria’s total debt may seem benign at just 18.2 percent of Gross Domestic Product (GDP), a closer look at debt service payments reveals a different picture of a crushing interest burden on the domestic debt alone.

Nigeria spent N659 billion to service its domestic debts in 2012, which is almost equivalent to half of the N1.32 trillion budgeted for capital expenditure by the FG last year, according to Yerima Lawan Ngama, the Minister of State for Finance.

Ngama, who spoke in Lagos yesterday at a novel ministerial dialogue with the private sector organised by the Nigerian Economic Summit Group (NESG), with the theme, ‘the competitiveness of Nigeria’s business environment’, said the Federal Government borrowing at double digit interest rates was unsustainable.

Six ministers were on hand to redender account of their stewardship.

“There is no country in the world which can develop by selling FGN bonds at 18 percent,” Ngama said.

“This is just for the sovereign. If the private sector which prices off the sovereign wants to borrow, they now have to pay north of 20 percent,” he said.

Domestic debt service payments accounted for 14.4 percent of total federal retained revenue in the 2012 budget, and as much as 31.7 percent of the non-oil component of the total.

The FG domestic debt stock stood at N6.5 trillion at the end of 2012, with FGN bonds making up 61.44 percent of the total.

Borrowing costs on the 16.39 percent domestic bonds due January 2022 increased 17 basis points to 11.44 percent, according to March 15 data compiled on the Financial Markets Dealers Association website.

The government had begun to take steps to decelerate the rate of growth in the domestic debt, according to Ngama.

The Federal budget deficit has shrunk to 2.17 percent of GDP in 2012 from 4 percent in 2009, while domestic borrowing has been cut to N585 billion this year, from N744 billion in 2012.

Improved budget management, including the reduction in fiscal leakages and the establishment of a N100bn sinking fund to retire maturing domestic debt, should also cap domestic borrowing costs, Ngama said.

Total revenues of the PHCN power distribution companies (Discos) reached N102.9 billion in 2012, a 21.9 percent increase from the 2010 level of N84.4 billion.

The increase in revenues from the DISCOs was achieved in spite of the fact that only 40 percent of Nigerians are currently connected to the national power grid, highlighting the opportunities for growth and investment in the sector, according to Zainab Kuchi, the minister of state for Power, who also spoke at the NESG event.

The Discos had total capacity of 7,325 MW in 2012, the transmission capacity had also improved to 7,000 MW, she said.

The sector needs about $340 billion to increase generating, distribution and transmission capacity to 40,000 MW by 2020, which is why the FG is keen to attract private investments into the sector, according to Kuchi.

Nigeria is selling majority stakes in power plants and letting private investors acquire as much as 60 percent stakes in 11 distribution companies spun out of the former state-owned utility, PHCN.

The NESG is a private sector-led think thank that aims to champion the reform of the Nigerian economy into an open, private sector-led, globally competitive one.