Nigerians were stunned last week when the Chairman of the Senate Committee on Local and Foreign Debts, Senator Ehigie Uzamere disclosed that Nigeria’s total debt now stands at $39.72 billion (N6.02 trillion).
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?Out of this amount, external and domestic debts are N810 billion ($5.398 billion) and N5.210 trillion ($34.33 billion), respectively.
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The debt mix may be comforting at face value giving that it is tilted more towards domestic borrowing which accounts for about 87 per cent of the total debt. What this means is that Nigeria is cushioned from any external pressure that could come from international lenders as was the case prior to 2005 when nearly 80 per cent of Nigeria’s total debt stock was owed to foreign lenders.
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Moreover, the fact that the figure is just above 20 per cent of the country’s gross domestic product (GDP), much lower than the recommended threshold of 40 per cent gives a semblance of safety.
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However, the manner of accumulating the debt is still a source of concern. Barely six years after exiting the Paris Club debt stranglehold, the country is yet again plunged into another round of indebtedness, and with little to show for it.
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The state of infrastructure has hardly improved in the last six years and the state of the economy leaves much to be desired. According to the Senator, the era of frivolous borrowing may be here again as government borrowing has not been project-specific. “Government should focus more on borrowing for projects with self-repaying capacity and job generation rather than borrowing to finance gaps in budgets that are largely recurrent”.

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Safety of bond market
Over the years, Nigeria has relied on bond market in order to fund budget deficit. The Debt Management Office (DMO) raised over N600 billion in 2009, and about N1.24 trillion in 2010 as part of national revenue management in financing. For the 2011 budget, the office had estimated to raise about N856 billion to finance the deficit. So far, it has raised about N451.7 billion as part of financing the 2011 budget of N4.487 billion, with a deficit of N1.136 trillion, which is about 2.96 per cent of GDP. The Fiscal Responsibility Act of 2007 pegs budget deficit at 3 per cent of GDP.
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According to Adedayo Idowu, analyst at Vetiva Capital Management Limited, an investment advisory firm, while issuances in 2011 have fallen from the levels recorded in the previous year, the increase in earnings may actually have provided a buffer. “Government’s effort at fiscal consolidation, and intention to fund budget deficit through other less expensive media implies that bond issuances could continue at current modest levels.”
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He said the States, which have thronged the bond market in the last few years have a financing need of around N3 trillion for the next three years based on the federal government’s Medium Term Plan).? Six States have raised about N236 billion this year. “Borrowing enables sub-nationals embark on large capital expenditure projects, and spread the debt service over the economic life of the asset (financed by the debt) so that the beneficiaries can pay for it,”? he said in the firm’s mid year bond market analysis.
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The DMO has always married the need to borrow to fund government deficit with the expediency to develop a virile bond market. According to Abraham Nwankwo, Director General of the DMO, the office was building a robust bond market in order for the sub-national and private sector to leverage it to secure cheap long term funds. “After 2006, a new strategic plan became necessary, to enable the country play a more proactive role in contributing to the growth and development of the economy. Therefore, in 2007, a new 5-year strategic plan was finalised, to run between 2008 and 2012, with the vision of utilising debts as assets for the country’s growth and development.”
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He said the existence of a benchmark yield curve has created a platform and incentive for other borrowers to access fund for developmental needs.

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Debt as economic strategy
Sovereign debt has become a part of a country’s economic management strategy. Countries need to borrow in order to finance developmental projects and to meet their financial obligation to their citizens. Thus, infrastructure can be provided with borrowed funds, which in turn, adds value to the lives of the citizens.
The United States of America, the world’s largest economy, is also the biggest debtor. With an annual gross domestic product (GDP) of $15.003 trillion as at end of June 2011, America’s gross public debt rose from $10.7 trillion by December 2008 to $14.2 trillion by February 2011. America’s debt to GDP ratio of 99.6 per cent is the highest in the world. The result is a downgrade by Standard and Poor’s from AAA to AA+, the first time since 1917.
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The only difference, perhaps, is that while America and other advanced economies borrowed to execute specific projects, ours is more like pouring water into a basket. With high level of corruption and leakages in the system, one does not need to look far to know why Nigeria’s level of infrastructural and social development is not commensurate with the debt so far accumulated.?
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According to Senator Uzamere, though the debt figures were still within safe limits, there was need to consider the ability to pay, given the country’s current revenue.? He said current Debt Sustainability Analysis could be made more meaningful to Nigerians. He believes the focus should be on translating the country’s debt into asset to accelerate infrastructural development and boost the economy.
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With the pass mark given the country recently by Fitch Ratings, upgrading Nigeria’s outlook to stable, (even while America got a downgrade), the country may be recording modest achievement in economic advancement. However, given the pallid state of the economy, the country should be in a hurry to translate the huge borrowing into tangible benefits to the people.
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