The size of Federal Government’s loans has reflected on the debt servicing expenses as it spent ₦474.06bn to service domestic debts in the first three months of this year.
Statistics obtained from the Debt Management Office in Abuja on Wednesday showed that the country also spent $127.92m to service foreign debts in the first quarter of the year.
At the official exchange rate of ₦306.35 to a dollar, the cost of servicing the foreign loans amounted to ₦39.19bn in the first quarter of the year.
This means that the Federal Government spent ₦434.87bn more on servicing its domestic debts than on foreign debts in the first three months of the year.
The Federal Government’s domestic component of the total debt stood at ₦11.97tn as of the end of March. The country’s external debt (for both the federal and state governments) stood at $13.81bn in the period, while the states’ domestic debts rose to ₦2.96tn.
For some years now, the Federal Government has been saying that it will move to borrowing less from domestic sources because of high interest rates and because it has crowded out private sector operators from the debt market.
However, it has not been able to achieve this as it continues to borrow from the domestic market every month, using a variety of instruments. In fact, a new borrowing instrument, FGN Savings Bond, was recently introduced into the market.
The World Bank had recently said that lower earnings had endangered the capacity of the Federal Government to sustain debt servicing even though the nation’s debt profile remained low in comparison to the Gross Domestic Product.
Our correspondent reported that the servicing of Federal Government’s domestic debt gulped ₦1.23tn in 2016.
The DMO statistics showed that the highest interest payment of ₦839.79bn was made on debt acquired using the instrument of FGN Bonds.
Similarly, ₦335.58bn interest was paid on loans borrowed with the instrument of Nigeria Treasury Bills, while debts incurred with Treasury Bonds incurred a servicing obligation of ₦29bn in the year 2016.
A principal value of ₦25bn of Treasury Bonds was also repaid within the year.
The ₦1.23tn paid in servicing the domestic debt of the Federal Government was spread throughout the 12 months of the year.
The Federal Government had in 2015 spent ₦1.02tn to service its domestic debt. This comprised of ₦25bn repayment of the principal and ₦993.13bn interest payment within the year.
This means that in one year, between 2015 and 2016, the cost of serving the Federal Government’s domestic debt rose by ₦208.76bn.
In a report on the cost of the domestic debt, the DMO attributed the increasing cost of debt servicing to an equally increasing domestic debt profile and an increasing interest rate.
The report stated, “The Federal Government’s domestic debt service as of end of December 2015 amounted to ₦1.02bn, compared to ₦865.81bn in the corresponding period of 2014, and representing an increase of ₦152.32bn or 17.59 per cent.
“This amount comprised principal repayment of ₦25bn and interest payment of ₦993.13bn. By instrument type, FGN bonds debt service accounted for 62.41 per cent of the total debt service payment, while payments in respect of the Nigerian Treasury Bills and Treasury Bonds were 31.83 and 5.76 per cent, respectively.
“The trend analysis shows a continued rise in FGN’s domestic debt service payments from 2011 to 2015, which was attributed to the increase in the domestic debt stock, as well as the higher interest rates, which led to the rise in the cost of borrowing in the domestic debt market.”
In another document titled: ‘Nigeria’s Debt Management Strategy 2016-2019’, the DMO said at least 30 per cent of the nation’s domestic debt would fall due within a one-year period.
It stated, “The implied interest rate was high at 10.77 per cent, due mainly to the higher interest cost on domestic debt. The portfolio is further characterised by a relatively high share of domestic debt falling due within the next one year.
“Interest rate risk is high, since maturing debt will have to be refinanced at market rates, which could be higher than interest rates on existing debt. The foreign exchange risk is relatively low given the predominance of domestic debt in the portfolio.”
It added that the main risks to the existing public debt portfolio were high refinancing risk, given that more than 30 per cent of the domestic debt would mature within one year; and high interest rate risk arising from the high proportion of domestic debt due for re-fixing in the coming year, and therefore, exposed to changes in interest rates.