The Federal Government’s total debts and contingent liabilities have hit N60.9 trillion even as the figure could balloon to near N65 trillion before the end of the year, as President Muhammadu Buhari-led administration scrambles for any available funds to survive the current financial squeeze before its expiration in May, next year.
The figure does not include undocumented contingent liabilities to university lecturers, public school teachers and other public employees to whom the government is indebted. It also excludes other pending financial liabilities to non-lending bilateral and multilateral institutions.
The Federal Government’s debt obligation stood at N35.7 trillion as of June. The amount does not include the Central Bank’s lingering overdrafts estimated at N20.6 trillion at the last count. Besides, the government’s “contingent liabilities” to different institutions and projects stood at N4.6 trillion at the close of last year. The figure is projected to reach N4.98 trillion at the end of the year and jump by as much as 50 per cent to N7.52 trillion next year when the current administration will leave office.
Items and organisations on the contingent liability list are Nigeria Mortgage Refinance Company Plc, Nigeria Ports Authority – Lekki Deep Seaport, pension arrears, NNPC – AKK Gas Pipeline Project among others.
Meanwhile, both the federal and state governments are piling on more local debts as international credit lines become increasingly inaccessible or unaffordable. Recent data point to a remarkable shift of preference for local debts.
Added to this new trend, states are slipping faster into indebtedness than the Federal Government, as suggested in a review of data by the Debt Management Office (DMO). Their total debt stocks expanded by 11.6 per cent in the first half of the year as against the combined growth of 8.3 per cent in the sovereign debts.
But while the average net debt incurred by state governments increased by over one-tenth in the six-month period, the growth of their exposure to external debtors fell by approximately four per cent in the period (N78.3 billion).
According to the DMO data released on Monday, the external debt profile of the sub-national governments plus the Federal Capital Territory (FCT) declined to N1.89 trillion as of June against N1.97 trillion owed by the entities at the close of last year.
But the shortfall in the debt portfolios held by foreign institutions and investors was substituted by a more aggressive increase in domestic borrowings, which increased by N0.82 trillion or 18.5 per cent during the same period.
Debts owed by the 36 states and FCT rose from N6.43 trillion to N7.17 trillion from January to June this year. In percentage terms, an average state increase is 11.6 per cent more indebted to both local and foreign debtors than it was six months ago.
This is as President Buhari, in separate letters of request, yesterday sought approval of the Senate for the issuance of promissory notes totalling over N402 billion. The first of such requests read during plenary by President of the Senate, Ahmad Lawan, was N375 billion meant for settling outstanding claims owed various exporters.
Other similar debt payment requests, to be routed through DMO, are N6.706 billion for the Kebbi State government for the construction of federal roads in the state and N2.706 billion for the Taraba State government for constructing federal roads.
President Buhari, in another request as read by Lawan, also sought Senate’s approval on the issuance of N18.623 billion for Kebbi.
The President, in the letter, said payment of N18.623 billion to the Yobe State government would help the state to offset all monies expended on the execution of five different federal road projects in the state. The President sought expeditious consideration of the requests.
Going by the latest official disclosure, state governments and FCT’s share of the national debts, which stands at N42.85 trillion, has risen from 16.2 per cent to 16.7 per cent while that of the Federal Government shrunk moderately from 83.8 per cent to 83.3 per cent.
It would be recalled that the Minister of Finance, Budget and National Planning, Mrs. Zainab Ahmed, had disclosed that some of the sub-national debts were not captured in the sovereign debt basket while speaking in Washington, United States, at a panel discussion on Debt Transparency at the World Bank/ International Monetary Fund (IMF) Annual Meetings in 2020.
“Going forward, we want to scan the environment and have a good database of all the debts that government owes, whether at the sovereign or sub-national level. Also, we are trying to capture debts of the state-owned enterprises and debts we owe local creditors,” the Minister stated.
Two years after she made the promise, details of the sovereign debts are still shrouded in secrecy, however, some experts believe governments across the country could be more indebted than they officially declared. A component of the debt that is still in the realm of speculation is the Central Bank of Nigeria (CBN)’s overdrafts to the Federal Government, which is estimated at N20.6 trillion.
According to data obtained from DMO, the Ministry of Finance, Budget and National Planning, the total debts and other contingent liabilities of the Federal Government are not less than N96.9 trillion. The government’s share of national debt stood at N35.7 trillion in June, while it is indebted to the CBN to the tune of N20.6 trillion.
The 2023-2025 Medium Term Expenditure Framework (MTEF) and Fiscal Strategy Paper (FSP) also pegs its ‘contingent liabilities at the end of last year at N4.58 trillion.
Entities owed by the Federal Government in this category are FCDA-Katampe Infrastructure Project, Nigerian Ports Authority (NPA)-Lekki Deep Seaport, Nigerian Export-Import (NEXIM), Nigeria Mortgage Refinance Company Plc, Payment Assurance Facility for Nigeria Bulk Electricity Trading Plc, Power Sector Contingent Liabilities, Put-Call Option Agreement (PCOA) and Power Sector Contingent Liabilities – Partial Risk Guarantees (PRG).
Others are Legacy FGN Exposure from PHCN Successor Companies, NNPC-AKK Gas Pipeline Project and Pension Arrears for ministries, departments and agencies (MDA).
Official documents from the Budget Office say the liabilities could increase moderately to N4.98 trillion by year-end and jump by over 50 per cent to N7.52 trillion next year when a new administration comes on board.
The liabilities, interestingly, do not capture dues to the Nigeria Union of Teachers (NUT), Academic Staff Union of Universities (ASUU) and several other labour groups.
Obligations relating to the country’s ongoing bilateral and multilateral financial commitments are also not captured in what Prof. Godwin Owoh, an economist and debt management consultant, said, adds to the country’s real debts.
Effectively, President Buhari’s administration will be passing well over N60 trillion in debt and contingencies to a new administration in May, next year. The ways and means (W&M), added to other officially documented figures, will push the sovereign debt inch towards N63 trillion. Apart from concerns over the cost of servicing the bloated CBN overdrafts, stakeholders are worried about the government’s silence on how it intends to liquidate the supposed short-term facility.
The last word on it came through the Director of the DMO, Patience Oniha, early last year when she disclosed that the Federal Government planned to convert the facility to a 30-year instrument. This was to be done in line with the debt management strategy of the administration, which leans towards long-term maturing.
The Oniha plan could run into legal encumbrances as the CBN Act is clear on how its budget support or other short-term facilities should be treated.
Section 38 of the CBN Act says the apex bank could extend overdrafts to the Federal Government to tackle a temporary shortfall in revenue. It, however, states that any outstanding overdraft shall not exceed five per cent of the previous year’s actual revenue of the government.
It adds that the amount lent should be repaid “as soon as possible” and that the power to extend the credit line shall not be exercisable subsequently should government fail in liability to repay at the end of the financial circle the overdraft is granted.
IMF had called on the apex bank to subject the facilities to the ambit of its enabling loan. Other experts have also called on CBN to liquidate the amount and call off the lifeline to rein in inflation, which stood at 20.5 per cent last month.
While the state government’s external debt balance at the end of June was lower than its position in December, the Federal Government is containing its appetite for foreign borrowings, which is overtly affected by foreign exchange volatility risk. The central government scaled down the growth of external debt to six per cent in the first six months while the domestic component went up by approximately nine per cent.
The Guardian had reported earlier in the year that the country faced enormous trouble accessing the international debt market, as interest rate hikes were the main talking point at central bank meetings. Since then, central banks across the world have engaged in a rat race to jack up interest rates.
The Federal Reserve System has increased its benchmark interest rate three times this year with another raise due today as it ends its two-day meeting. From Japan to the United Kingdom and Europe to Africa, other central banks have jumped on the bandwagon, pushing banks and the investment market into risk reprising.
Consequently, prices of Nigerian sovereign bonds have fallen sharply with yields hitting the roof. For instance, 10-year bonds have increased by over 100 per cent, even as investors continue to dump Nigerian sovereign bonds.
Owoh told The Guardian that only investors with questionable intentions were willing to transact in Nigerian bonds at any price, arguing that risks are higher than at any other time in history.
Earlier, JP Morgan, an American leading investment bank, delisted Nigeria from the class of emerging market sovereign recommendations that investors should be ‘overweight’ in.
“Nigeria’s fiscal woes amid worsening global risks backdrop have raised market concerns despite a positive oil environment,” the bank said, while it upgraded Serbia and Uzbekistan for their low risks.
JP Morgan’s decision is interpreted as a grave red light with negative implications on the country’s investment outlook and credit worthiness. Other credit rating agencies, including Fitch Ratings, have raised countless questions about the country’s competitiveness while calling for reforms, suggestions often rebuffed by the government.
With frosty relations with western funding partners, China is becoming extremely wary about lending to African countries, including Nigeria. This, experts said, has made the local market the only practical option for the government to fund its rising deficits.
Dr. Muda Yusuf, Chief Executive Officer of the Centre for Promotion of Private Enterprise, and other economists have warned of the negative implication of a possible crowding out effect this could trigger. Yusuf is concerned that the private sector players cannot match the war chest of government.
The fear of overcrowding out effect is real and already reflected in the country’s credit data. Out of the N59.96 trillion of total net domestic credit held by the financial institutions as of July, N20.09 trillion was extended to the government. That figure translates to 33.5 per cent of the total debt.
In January last year, banks’ credits to governments were N12.08 trillion or 28.4 per cent of the net domestic credit. Detailed analysis shows that the government’s share of domestic debt has grown at a fast speed in recent years while the ratio held by the private sector continues to shrink.
A continued decline in the amount of credit available to businesses flowing through the private sectors’ overhang, experts have warned, portends danger for the ability to jobs and tax revenues.