•It’s time to address oil theft, govt spending –Experts
By Chinwendu Obienyi
With its public debt rising to N87.38 trillion in the second quarter (Q2) of 2023 and with N23.7 trillion in Ways and Means added to the domestic component of its debt stock leading to an external debt of $38.8 billion, Nigeria is already at a risk of a debt overhang should further surge in government’s commitment by recorded.
This debt overhang, according to economic analysts, could happen with more Naira depreciation . Currently, the Naira exchange rate at the parallel market rose to N1000/$1 as forex traders continue to grapple with dollar scarcity.
Debt overhang occurs when a country’s debt burden becomes unsustainable, leading to difficulties in servicing the obligation.
An analysis of the Q2 2023 Nigeria’s domestic and foreign debt numbers recently published by the National Bureau of Statistics (NBS), Nigeria’s total public debt stock in dollar terms rose 4.7 per cent quarter-on-quarter (q/q) (January-June: 10 per cent) to $113.4 billion in the reporting period while the Naira equivalent jumped by 75.3 per cent to N87.38 trillion with 69.1 per cent share being domestic debt.
The report also revealed that in terms of the proportional distribution of the debt liabilities between the FG and States +FCT, the FG’s share at the end of Q2 stood at 89.5 per cent, representing an increase of 540 basis points from 2022 year-end level.
Reacting to the report, analysts noted that the significant increase in debt during the review period was mainly due to the effects of the inclusion of the securitised Ways & Means Advances in the local debt numbers and FX devaluation on the foreign debt. In addition, they highlighted that new borrowings by FG and States also contributed to the increased debt.
They said, “We observed a significant negative pass-through effect of the Naira devaluation in Q2 (due to the shift in FX regime amid weak buffer) on FG’s external debt component.
Precisely, while the FG’s external debt only rose by 4.2 per cent in dollar terms to $38.8 billion from $37.2 billion in 2022, the Naira equivalence jumped by 79 per cent to N29.9 trillion- a development that indicates maybe at a risk of debt overhang should Naira depreciation continue and/or external debt profile rise further”.
Hence, assessing the implications of the new changes to Nigeria’s debt profile from the prism of local and internationally set debt sustainability metrics, Africa’s most populous country is seemingly on the cusp of insolvency evidenced by the unimpressive readings of Debt-to-GDP, Debt service-to-revenue and fiscal deficit as a percentage of GDP in H1 2023.
According to analysts at Afrinvest, the macroeconomic health pointers – Inflation (25.8 per cent) and exchange rates (Official rate: N747.76/$1, Parallel rate: N995/$1, crude oil output (1.18mbpd), FX reserves ($33.2 billion) an foreign capital inflows ($1.1 billion) – are all at their lowest ebbs in a decade and underscores some of the herculean task inherited by the new administration.
They called on the FG to take action in curbing the rise in crude oil theft, insecurity, right-sizing recurrent expenditure and eliminating bureaucratic drag on business processes while adding that these actions could stem the looming fiscal crisis.
For their part, analysts at Cordros capital, said the increase in public debt without contracting new ones played out just as they envisaged in their H2 2023 domestic macroeconomic outlook. The analysts explained that with the CBN’s Ways & Means Advances now being securitized in addition to the local currency depreciation and expected increase in new borrowings to fund the 2023 budget deficit, they expect the public debt outstanding to settle at N90.49 trillion (or 43.1 per cent of GDP) in 2023 (vs 2022 FY: N46.25 trillion or 23.2 per cent of GDP).
According to them, “the narratives in the FX market have remained the same in recent weeks, as FX reform momentum has slowed down. Hence, barring any significant positive developments, we expect the lingering low crude oil production and a sustained dip in foreign investors’ net flows to weigh on FX supply in the short term. Consequently, we expect FX liquidity constraints to linger in the near term, ensuring the local currency pressures remain intact”.