NIGERIA'S EXTERNAL DEBT IS USD3.62 BILLION, SAYS DEBT MANAGEMENT OFFICE

[xclusivenigeria]

NIGERIA'S EXTERNAL DEBT IS USD3.62 BILLION, SAYS DEBT MANAGEMENT OFFICE

Nigeria's Debt Management Office (DMO) has said categorically that the country's external debt stood at USD3.62billion, by the end of March, 2009.

Reacting to speculation over the true position of the country's debt profile, the DMO said in an email to xclusivenigeria.com yesterday, that most of the figures bandied around in the press were inaccurate.

Putting the records straight, the DMO told xclusivenigeria.com: "After Nigeria's exit from the Paris Club debt in 2005/2006, the external debt stock dropped dramatically and substantially. By end-December 2004 (before the exit process commenced), the external debt stock was about USD35.94billion, but by end-December 2006, the stock was a much lower amount of USD3.54billion.

"The debt stock figure by end-December, 2007 was USD 3.65billion; by end-December 2008, it was USD3.72; and by end-March, 2009 it was USD3.62billion."

In its email to xclusivenigeria.com, the DMO said: "It is, therefore, clear that after the exit from the Paris Club, the external debt stock has been kept prudently restrained. The view held in some quarters that Nigeria's external debt has blown up again after the exit from the Paris Club debt is, therefore, not correct.

"It seems that part of the reason for the misunderstanding is the non-recognition that when Nigeria paid off its Paris Club and London Club debts, it did not pay off its multilateral debts, as this was neither necessary nor desirable. Only the problematic and the odious component of the external debt was cleared off.

"Much of the external debts remaining after the exit from the Paris and London Club debts are loans from multilateral financial institutions (World Bank, African Development Bank, International Fund for Agricultural Development, etc). The loans from these sources constitute about 85% of the country's external debt stock as at March 31, 2009.

"It is pertinent to note that about 83% of the loans from multilateral sources are soft loans, with highly concessional terms: free of interest charges; service charge of 0.75%p.a. and long repayment periods of 40 years and above, including a grace period of 10 years.

"In view of their long tenors, implying gradual instalmental repayments, it is obvious that some of the outstanding loans were contracted more than 20 years ago and cannot be attributed to the last few years. Indeed, some of the loans were contracted in the 1960s, 1970s and 1980s for various infrastructural and social development projects.

"It is because their repayments were scheduled to be gradual so as not to put serious burden on fiscal resources, that part of them are still outstanding. That the loans have a long repayment period is beneficial, given the nature of the projects and services they financed - projects and services like basic education, health and rural water supply, as well as roads whose revenue-generating impact is at the best slow, small and indirect.

"More importantly, it should be noted that much of these loans were applied to the provision of social and infrastructural services over the years. There is no doubt that some of the infrastructure funded in the 1960s, 1970s and 1980s are still useful assets to the people."

The DMO told xclusivenigeria.com further: "While the post-Paris Club external debt stock has remained sufficiently restrained, it does vary up and down within reasonable limits even if no new loans have been incurred. This is because old loans could still be disbursing while, at the same time, repayments of principal amounts due could be taking place. The direction of the swing in the outstanding debt stock, therefore, depends on the net result of disbursements and repayments.

According to the DMO: "Although some new concessional loans are being processed in 2009, it is relevant to recall that a USD500million funding from the international capital market (ICM) was duly appropriated by the National Assembly in the 2009 Budget. Due to the global economic and financial crisis and the resultant unfavourable market conditions, it has been considered prudent to tarry awhile in approaching the ICM. Since the USD500million is a financing item in the 2009 Budget, one would agree that it is appropriate for efforts to be made to, at least temporarily, prospect for alternative funding sources so as not to disable the implementation of the Budget.

The DMO noted that it was pleased with the increased awareness of Nigerians and interest in the nation's external debt stock. Its words: "Recently, there has been a positive and inspiring development around Nigeria's public debt management issues, in terms of growing interest and participation by stakeholders.

"This development, which has manifested in various forms, including, enquiries, comments, concerns, criticisms and suggestions, demonstrates that the efforts of the Debt Management Office (DMO) to democratize public debt management knowledge and practice is producing the desired results. It represents a growing effective demand for public debt management services, which is very essential for guaranteeing and sustaining quality supply of the services.

"In this context, it would be useful to continue to repeatedly present to stakeholders and the general public, the true position of the country's external debt after the paying off of the Paris Club and London Club debts."

In a comparison with other countries, the DMO noted: "Compared with other countries, Nigeria's overall debt sustainability condition, as measured by the Debt-GDP ratio remains very good...Nigeria's total Debt-GDP ratio is desirably much lower, whether compared with other countries at a similar stage of economic and social development, or with countries having more advanced economies.'

On Nigeria's commitment to debt sustainability, the DMO said: " Nevertheless, Government is committed to ensuring debt sustainability and avoiding a relapse into the pre-Paris Club debt exit situation. In line with this posture, the Debt Management Office has developed a National Debt Management Framework (NDMF) to guide the policy and strategy for external and domestic borrowing by the Federal and State Governments, as well as their agencies.

"The NDMF contains specific guidelines for borrowing designed, not only to limit borrowings to sustainable levels but also to ensure that there is value for money and that the use of funds leads to growth, employment and poverty reduction. Further, the DMO working closely with the Ministry of Finance, the CBN, the National Planning Commission and other agencies conducts annually, a Debt sustainability Analysis (DSA) to keep track of the statics and dynamics of the public debt sustainability under changing local and external scenarios.

"Although the country desires massive resource inflows in order to fund the closing of its huge infrastructure deficit, it will continue to limit the extent of its dependence on external debt financing, while encouraging the inflow of non-debt resources, such as foreign direct investments. In addition, the country is making progress in the development of the domestic debt market, to encourage domestic saving and its mobilization, as an alternative source of funding public and private sector projects.

"In this regard, it is noteworthy that the DMO working with other government agencies (the CBN, the Ministry of Finance, the Securities and Exchange Commission) and the private sector capital market players has transformed the psychology and practice of the domestic debt market from a short-termic to a long-termic one: The tenor of FGN Debt instruments has been extended progressively over the last few years from 91 days to 20 years.

"Hence, a dependable substitute for external debt funding is being developed. However, the goal is not to achieve a 100% substitution: rather, the goal is to operate within a dynamic-optimal range of external-domestic debt mix."
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