Wednesday 26 October 2016

Buhari seeks approval to borrow N9.12tr in two years

Nigeria will be increasing its external debt by as much as 150 per cent in the next two years if the National Assembly approves President Muhammadu Buhari’s plan to borrow $29.960 billion (about N9.12 trillion) within the period.

The president’s request to the House of Representatives yesterday explained that the N9.12 trillion would help the country tackle its socio-economic challenges.

In a correspondence read by the Speaker of the House, Yakubu Dogara at the plenary session, Buhari explained that the borrowing would span 2016 to 2018 and be used to implement projects across all sectors of the economy.

The president’s move may not be unconnected with the recommendations proposed in the 2016 Report of the Annual National Debt Sustainability Analysis (DSA), released yesterday by the Debts Management Office (DMO).
Estimated at the official rate of N307.79 per dollar and considering naira devaluation, the real value of the country’s debt stock is N18.9 trillion ($61.45 billion). And given other anticipated borrowings to fund the N2.2 trillion 2016 budget deficit, the fiscal plan provided for more than N1.4 trillion for debt servicing.

Government’s proposal for a debt deal of $30 billion (a little more than N9 trillion at official exchange rate) will worsen the debt-servicing to revenue ratio.

Currently, the country’s external debt profile for both multilateral and bilateral agreements is put at $11.3 billion (N3.19 trillion in official rate).

The new foreign debt plan represents 62.33 per cent increase over the current foreign obligation.

As at second quarter of 2016, a copy of the “Actual Debt Service Payment” by the DMO showed that under the multilateral component of foreign debt, the country paid $33,824.73.

Of the amount, $21,864.55 represents the principal; interest fee, $1737.04; service fee, $10,576.33; deferred service charge, $51.48; commitment charges $11.36 and a deduction of waiver credit, $416.04.

This showed that for the repayment of $21,864.55 principal, associated costs amounting to $11,960.18 were incurred.

Of course, if this is the model of repayment or something similar for the proposed $30 billion debt deal, it means that the country’s debt service bill will add hundreds of billions yearly.

This will lead to high-risk valuation of the country’s debt instruments, as investors will ask for rates to offset the risks.

God Save US  . 
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