Debt Burden Unsustainable, By DMO
'Banks invest N41bn in FGN N150bn bonds'
From Kunle Aderinokun in Abuja
The Debt Management Office (DMO) has said the nation's external debt stock which currently stands at $34 billion was unsustainable and required pragmatic and proactive actions by creditors in order to save the economy from strangulation.
In its Annual Report and Statement of Account for 2003, released in Abuja at the weekend, the DMO said, "Despite the rescheduling and restructuring of its debt under Houston Terms, Nigeria still faces a severe debt situation as measured by traditional indicators of debt sustainability."
The nation's debt managers noted that the debt stock which was $32.92 billion as at December 2003, was 64.43 per cent of the nation's Gross Domestic Product (GDP), translating to $261.26 per capital.
President Olusegun Obasanjo had in his 2005 Budget proposals to the National Assembly last week announced that the debt stock has increased to $34 billion despite the N183.60 billion appropriated for external debt servicing in this year's budget.
The DMO in its report noted that "the severity of the external debt overhang could be seen in terms of debt to export ratio of over 176. 9 per cent and a debt service due to export ratio estimated at 19.41 per cent in 2003. These ratios represent a standard case of debt overhang and classify Nigeria as a severely indebted poor country,"
The Office lamented that the nation's external debt which was less than $1 billion in 1970 rose to over $33 billion in 1980 and has continued to hover around $30 billion -either slightly less or above that mark, in spite of several billion dollars spent on its servicing.
The DMO revealed that the total external debt service payments for the year 2003 was $1.809 billion compared to $1.168 billion in 2002, representing an increase of $640 million or 54.87 per cent rise.
The amount, according to the DMO, comprised of principal payments of $1.261 billion; an interest payment of $522.66 million; commitment charges of $12.71 million; penalty charges of $6.27 million; and other charges amounting to $5.98 million.
While noting that appropriation for external debt service in 2003 was only about 34.27 per cent of the external debt obligations for that year which was put at $5 .250 billion, it stated that the figure was more than 60 per cent of the entire Federal Government budget for the year.
It further disclosed that as at end 2003, Nigeria's highest indebtedness to the Paris Club members was to the United Kingdom which stood at $6.104 billion. This was followed by Japan, $4. 146 billion; France, $3.710 billion; Germany $3. 544 billion; Italy, $2. 025 billion and Finland $2.68 million.
The DMO which recalled that the nation's heavy debts were incurred in the 1980s when the London-Inter Bank Offer Rate (LIBOR) hovered between 3 and 4 per cent explained that the debt grew rapidly through this period mainly due to the accumulation of debt service arrears as well as the escalation of market interest rate. It noted that LIBOR rose from 4 per cent to pick at 13 per cent in 1989 and thereby quadrupled the debt of many developing countries including Nigeria.
The DMO therefore said it has put stringent conditions against further reckless external borrowings by government at all levels to avoid worsening the situation.
Analysis of external debts owed by states showed that Abia topped the list with $647.4 million, followed by Plateau with $569 million and Niger with $500.4 million. Others with high debt profile are: Lagos $415.1million, Imo $428 million, Osun $398.6 million, Kogi $364 million, Kwara $352 million, and Enugu $311.1 million. States with low debts are Zamfara $23.1 million, Kebbi $29.8 million and Yobe with $40.6 million.
It also disclosed that banks across the country invested a total of N40.93 billion representing 56.41 per cent of total subscription of the First Federal Government N150 billion Bonds, which opened September 2003 and closed on October 10, 2003.
The First FGN N150 billion Bonds was issued in four tranches namely First FGN Bonds 2006 of N30 billion; First FGN Bonds 2008 of N40 billion; First FGN Floating Rate Bond 2010 of N40 billion; First FGN Floating Rate Bond 2013 of N40 billion.
The DMO added that the Pension Funds investment stood at N18.25 billion representing 25.16 per cent, while non-banking institutions including insurance companies, parastatals and other government agencies amongst others invested N6.27 billion or 8.64 per cent of the total.
Furthermore, the DMO also disclosed that discount houses and individuals accounted for the remainder with investment worth N5.65 billion or 7.79 per cent and N1.46 billion or 2 per cent respectively.
The overall performance of the FGN bonds, according to the Office, was under-subscribed by N77.46 or 51.64 per cent.
Analysis of the tranches showed that subscription of the First FGN Bonds 2006 amounted to N55.73 billion with 862 applications, representing an over-subscription of N25.73 billion or 85.77 per cent.
The DMO explained that "the observed patronage of this tranche reflects essentially the relatively short maturity profile of the tranche" noting that "in view of the prevailing market preference, the entire amount of N55.73 billion was fully allotted."
"In terms of performance", the office said, "the deposit money banks accounted for more than 50 per cent of the subscription with investments worth N36.43 billion representing 65.38 per cent of the total.
"The Pension Funds and discount houses invested N8.11 billion and N5.65 billion in this tranche, accounting for 14.55 per cent and 10.14 per cent of the total respectively. Non-bank financial institutions invested N4.51 billion or 8.089 per cent while the remainder of N1.03 billion or 1.84 per cent was accounted for by individuals."
The First FGN Bonds 2008 was under-subscribed by N27.72 billion or 69.30 per cent having witnessed a total subscription of N12.28 billion from 459 applications.
The DMO noted that the Pension Funds accounted for the lion share of investment in this tranche with N7.95 billion or 64.73 per cent of the total investment "reflecting the structure of their liability portfolio."
The deposit money banks and non-bank institutions, the Office added, invested N2.5 billion and N1.64 billion representing 20.37 and 13.33 per cent of the total, respectively. Individuals subscribed to the balance of N0.19 billion or 1.58 per cent while discount did not invest in the tranche.
Also, the nation's debt manager said the total subscription under the First FGN Floating Rate Bond 2010 was N3.96 billion or 9.9 per cent with 174 applications. This, it noted, indicated an under-subscription of N36.04 or 90.1 per cent.
It attributed the outcome to "lingering uncertainties and expectations about the direction of macro-economic indicators over the foreseeable future, notably inflation and exchange rates."
"Of the total subscription, deposit money banks accounted for N2 billion or 50.50 per cent while the share of pension funds amounted to N1.70 billion or 42.93 per cent. Individuals invested N0.21 billion or 5.30 per cent while non-bank institutions accounted for the remaining balance of 1.17 per cent," the DMO said.
In the First FGN Floating Rate Bonds 2013, only N0.60 billion was realized as subscription from 188 applications. This represented 1.4 per cent subscription and also an under-subscription of N39.40 billion or 98.50 per cent.
The DMO noted that the 2013 bond recorded the lowest outcome "possibly reflecting the perceived short-term horizon in investment decisions and lack of confidence in long-term macro-economic stability in the country."
"In terms of disaggregation, there were no subscriptions at all by deposit money banks and discount houses. Pension Funds however invested N0.50 billion or 83.33 per cent of the total; non-bank institutions invested N0.02 billion or 3.34 per cent," the DMO said.
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