‘Nigeria’s N42trn Domestic Debt Red Flag to Incoming President’

Oluchi Chibuzor

The Founding Managing Director, Agusto and Co, Mr. Olabode Agusto, has said the rise in domestic debt will be a burden for the next president of Nigeria.

He noted that with the country currently battling with inflation and unemployment, domestic debt of the federal government estimated at N42 trillion, cautioning there will be an increase in revenue generation.

Speaking at the Bank Directors’ annual summit, in Lagos recently with the theme, ‘Safeguarding Financial Stability In Nigeria: New Perspective for Bank Directors and Regulators’, Agusto said: “Our politicians are spending more than they earn and the gap gets wider and wider. And how do they find this; they start borrowing from the domestic financial system. Interest in the domestic financial system will spring up. Today we are not over leveraging foreign currency but certain things have happened that have made it more difficult for us to borrow in foreign currency. One is that our oil and gas revenue has come down significantly and the US interest rate has gone up and the government will not borrow at 12 percent when they used to borrow at six to seven percent and that window is now shut.”

According to him, “We are now borrowing from the CBN. We have a CBN that would support the federal government by lending money to them by overdraft. But today what is the aggregate debt of the federal government of Nigeria in Naira terms? In Naira terms we have N42 trillion but what is the revenue of the FG?. The two revenues may be at best N4.5trillion, so what we have is that the relationship between the debt and the revenue is roughly 10X. In all our analysis we have never seen 10X ; the median for countries in Sub-Saharan and Africa is 2X.”

However, from the regulatory perspective, the Deputy- Governor, Financial System Stability Directorate, CBN, Mrs. Aishah Ahmad, said both operators and regulators must understand each other’s objectives to ensure financial stability.

“We can work on these areas that are regulatory priority to ensure that the system remains resilient. We need to work on the single obligor limit and increase our FX risk exposure.

“On managing credit risk I think we need to be proactive about reviewing portfolios on credit that may increase the interest rate. We need to strengthen financial sustainability because it is only profit that can absorb loss,  help beef up capital and further investment in the kind of technology we need today for cyber security, “she sad.

For the President, Governing Council, Bank Directors’ Association of Nigeria (BDAN), Mustafa Chike-Obi, said BDAN is the forum to advocate for the financial industry.

Chike-Obi who had earlier said that regulators remain a threat to the financial sector, reiterated that they are an outside influence in the banking industry, adding “we have to be aware of what they are doing and always anticipate what the government is doing.”