The Central Bank of Nigeria (CBN) has disclosed that a sum of N57.35 billion ($187.7million) was spent by the federal government on debt services/payments between January and June of 2017.
The data by CBN however, did not specifically mention if the debt services/payment were used to service treasury bills, bond and eurobond.
The breakdown revealed that CBN’s debt services/payment in January stood at N15.2 billion ($50.8 million) but dropped to N6.9billion ($22.6million) in February.
The data from CBN revealed that debt service/payment rose to N14.4 billion ($47.05million) in March and close April at N9.9billion ($32.5million).
For May and June, that closed at N10 billion ($33.1 million) and N502million ($1.6 million) respectively.
Data obtained from CBN revealed that debt services/payment in prior six months was around $166 million, while the total debt services/payment according to CBN was at $349.6 million in 2016.
According to CBN, total debt service payments stood at N1, 082.8 billion, or 1.1 per cent of gross domestic product (GDP), made up of N64.7 billion, or $0.3 billion for external, and N1, 018.1 billion for domestic debt.
The apex bank had explained that the external debt service consisted of amortisation of N20.4 billion, or 31.5 per cent, and interest payments of N44.3 billion, or 68.5 per cent.
A breakdown of domestic debt service indicated that amortisation accounted for N25 billion, or 2.5 per cent, while interest payment was 993.1 billion, or 97.5 per cent of the total.
The federal government in 2017 budget had allocated N1.66 trillion on debt services, 22.3 per cent of the estimated N7.44 trillion.
The CBN continued to issue treasury bills at a double digit yield to support federal government’s financing infrastructures as dwindling global oil price has tumbled the nation’s economy into recession over the past year.
The $1 billion Eurobond issue early in the year was approximately eight times oversubscribed.
Managing director, Cowry Assets Management Limited, Mr Johnson Chukwu, in a phone chat said, the apex bank borrowed from the public with the issuing of treasury bills and a certain debt services must be rendered on those borrowed funds.
According to him, “The CBN borrowed from the investing public by the issuing of treasury bills. Those money market instruments have cost. The debt service/payment reported by CBN might be linked to treasury bills and short-terms instrument they mopped out from the system.
“Interest rate on treasury bills is around 18.5 per cent and it is not strange that CBN is paying highly on the value of borrowing.”
He noted that higher borrowing by federal government tends to crowd out private sector.
“When government is borrowing at a high interest rate, there is no motivation for banks to lend to private sector. Besides, it led to high cost of credit in the economy,” he added.
Managing director, Highcap Securities Limited, Mr David Adnori said, “The federal government has debt in naira and foreign exchange.
“The government has over borrowed. If you look at debt services obligations, compared to the budget, it is on a high side which makes it dangerous. If anything happens and government unable to service its debt, it will affect the credit worthiness of the country,” he said. In his comment, the head, Research and Strategy at GTI Securities Limited, Mr Chucks Anyanwu, noted that government’s borrowing has been a mixture of short- term and long-term from international investors.
He expressed that CBN did not break the debt services/payment into different categories.
According to him, the government borrowing depends on utilisations and timely interventions.
“If government borrows for developmental projects and sees it through, it is expected to add value to the economy. But if government borrows for the payment of salaries and consumption, it then becomes a problem.
“So far so good, the economy has been moving out of recession, there has been improved gross domestic product (GDP), the foreign exchange market has stabilised and Inflation rate has continued to drop.
“Technically, what that means is that, federal government is doing the right thing to get the nation out of recession,” he said.
In addition, managing director, Enterprise Stockbrokers Plc, Rotimi Fakayejo, said the CBN’s debt service could have been utilised effectively in the real sector of economy, appealing to government to reduce its borrowing and concentrate more on generating initial revenue using the tax.
He stated that the federal government should strengthen its nationwide tax collection policy by linking of Biometric Verification Number of working class citizens to a centralised tax payment.
Contribution by Kayode Tokede
