Adeosun: 77% of Nigeria’s N19tn Debt is from Domestic Market

•  Says repayment of $5.5bn loans may last 5-30 years
•  FG targets N12tn revenue in 2018 budget, N3.17tn for recurrent spending, N2.6tn for capex

Damilola Oyedele in Abuja

The Minister of Finance, Mrs. Kemi Adeosun, has said 77 per cent of Nigeria’s total debt stock of N19 trillion was secured from the domestic market, which could create crowding out and reduce the availability of funds to the private sector.

The minister said this while speaking at a meeting of the Senate Committee on Local and Foreign Debts on the $5.5 billion foreign loan request of the executive.

President Muhammadu Buhari in a letter dated October 4, 2017 had sought the approval of the National Assembly for the issuance of $3 billion Eurobond/Diaspora Bond in the international capital market to refinance maturing domestic debts, and $2.5 billion external borrowing to finance the capital component of the 2017 budget.

Adeosun, defending the loan requests Thursday, said there was need to reduce government domestic debt to free up banks that had invested heavily in Treasury Bills and FGN Bonds so that can lend to the private sector in order to stimulate economic activities.

She was represented at the meeting by the Director General of the Debt Management Office (DMO), Ms. Patience Oniha.
“If the government is so visible in the local market, it means the government is taking most of the money which ought to go to the private sector. It is called crowding out.

“If the government is not so visible in the domestic market, there will be enough for the banks to lend to the private sector, which would improve the economy,” Adeosun said.
A breakdown of domestic debts shows that N3.7 trillion is invested in Treasury Bills alone, with maturity tenures between three months and one year, she added.

Adeosun further explained that domestic debts are expensive with interest rates at 16 per cent and higher and have relatively short tenures.
Responding to queries from the lawmakers, Adeosun said the tenure of the external loans being sought by the federal government had not yet been determined but could range from between five and 30 years.

“We have them in various tenures. At the time you get to the market and you want to price, you will be more certain about the price. It could be anywhere from five to 30 years,” she explained.

Allaying concerns about amassing foreign loans that will be borne by future generations of Nigerians, she said: “The truth is that if we are borrowing long-term, we are using it to finance capital projects which are also long-term and the benefits of those projects are also long-term.

“I believe that some of the roads and even institutions, like some universities, that we see today were built before some of us were born. We should look at it that way, that the benefits are also long-term.”
She however declined to comment on whether “recovered loot” by the federal government will be deployed to repay some of the domestic debts, but assured the committee that any revenue accruing to the government including internally generated revenue would be judiciously used.

The Minister of Transportation, Mr. Rotimi Amaechi, who also appeared before the committee to defend the funding component for railway projects from the external loans, said about $36 billion was needed to revamp and complete a modern railway infrastructure for Nigeria.

He however noted that it would be gradual as Nigeria does not have the funds to undertake all at once.
“Fixing the railway infrastructure would take pressure off the roads, you can imagine the impact on agriculture and in turn the economy, when people can seamlessly move goods,” Amaechi said.

He added that the Kano-Warri and Kano-Kaduna rail tracks would be funded from the loan, while his ministry would return to seek more appropriation for Ibadan-Kaduna rail line.

Amaechi said about 80 per cent of the 36 state capitals were already covered by the designs for the railways, but funds would be required for actualisation.

Speaking earlier, the chairman of the committee, Senator Shehu Sani (Kaduna, APC), said the Senate was aware of the concerns of many Nigerians with respect to another round of borrowings and would require justification for the loans.

“Some of the questions Nigerians and indeed our constituents have asked repeatedly include: what has the federal government done with the reported recovered loot allegedly traced to the previous administration? What role can such monies play in the 2017 budget financing? How much indeed has been recovered? Has the National Assembly appropriated the recovered loot for government expenditure?” Sani enquired.
In another development, the Senate is set to consider a motion on the disbursement of the Paris-London Club refund as bailout to the state governments without the approval of the National Assembly.

Notice of the motion was brought to the Senate at plenary by Senator Sam Anyanwu (Imo, PDP) who also expressed concern that while governors continue to receive bailout funds, most of the states still owe workers’ salaries.
“The funds are not budgeted, I have not seen where the Senate approved the release of the funds,” he said.
In line with the Senate Rules, the motion was stepped down for consideration on the next legislative day, being next Tuesday.

During plenary, Senate President Bukola Saraki also read the letter from the president seeking the passage of the 2018-2020 Medium Term Expenditure Framework (MTEF) and Fiscal Strategy Paper (FSP).
Saraki also read a letter from the president seeking the expeditious passage of a Bill to Establish the National Centre for Disease Control.

Although the National Assembly has kept mum on the 2018 budget parameters and the revenue and expenditure for next year and those of 2019-2020 which are normally included in the MTEF, sources in the Budget Office of the Federation disclosed that government is targeting N11.983 trillion revenue from oil and non-oil sources in the 2018 fiscal year.

The MTEF also projected total federally collectible revenue of N15,179,080,402,702 and N16,813,316,506,209 in 2019 and 2020, respectively.
Of the N12 trillion revenue projected for 2018, N6,128,290,144,686 is expected from the oil sector, while N5,596,745,945,657 is expected from non-oil sector.

The sum of N350 billion was proposed for special interventions (recurrent), N2,597,246,628,719 is projected for capital expenditure in 2018, amounting to 30 per cent of the total budget, while N3,169,117,545,129 was set aside for recurrent expenditure, out of which N65 billion is for the amnesty programme; N2,122,268,415,101 is for personnel cost of the ministries, departments and agencies (MDAs); and N245,200,853,273 for overheads.

The 2018 budget deficit was pegged at N2,948,777,905,500 (2.61 per cent) against a gross domestic product (GDP) of N113,088,878,152,768.

The fiscal deficit is to be maintained at 3 per cent of GDP as stipulated under the Fiscal Responsibility Act, but at an average of about 1.93 per cent of GDP in 2019 and declining to less than 1 per cent of GDP by 2020.

Of the N2,028,011,577,001 proposed for debt service, N1,764,125,038,534 was allocated to domestic debt service, N263,886,538,467 was projected for foreign debt service, while N220 billion was provided for the sinking fund to retire maturing bonds for local contractors.

The MTEF showed that debt financing is expected to be restructured gradually in favour of foreign financing while domestic financing is de-emphasised.

While the proportionate share of foreign financing will increase from the current level of about 28 per cent to almost 72 per cent in 2020, domestic financing will decrease gradually from about 54 per cent in 2016 to about 26 per cent in 2020.

This is expected to prevent the crowding out of the private sector and accord the private sector a lead role in driving growth, the MTEF said.