Record-breaking $86bn debt leaves Nigerians stunned

Record-breaking $86bn debt leaves Nigerians stunned
Summary

• The pressure on the economy has caused an 8.31 per cent increase in debt owed from the total of $79.3 billion recorded in March.
• The public debt spiralled as officials argued for funding budget deficits and critical infrastructure.
• Government says loans being obtained by the current administration are primarily used to finance infrastructure — roads, railways, bridges and power.

By MOHAMMED MOMOH

Nigeria's debt of $85.9 billion, the highest in history, has become the talking point even as the country celebrates its 60th anniversary.

The pressure on the economy has caused an 8.31 per cent increase in debt owed from the total of $79.3 billion recorded in March. By December 2005, Nigeria was rated as one of the most heavily indebted countries, owing $33.9 billion.

Now the talk is on whether the money borrowed had helped or burdened the country.

Abuja’s debt obligation had gone down in 2006 after the country got debt relief. The Paris Club of creditors wrote off $18 billion of that debt, while the country paid off the balance and became largely debt-free.

However, in the years that followed, the public debt spiralled as officials argued for funding budget deficits and critical infrastructure.

According to the National Bureau of Statistics, 34.89 per cent of the total federal and state public debt is external while domestic accounts for 65.11 per cent.

The Debt Management Office (DMO) reported that the increase by $6.593 billion was accounted for by the $3.36 billion budget support loan from the International Monetary Fund, new domestic borrowing to finance the revised 2020 Appropriation Act, including the issuance of Sukuk, and Promissory Notes issued to settle claims of exporters.

Mortgaged future
The nation’s 2020 Appropriation Act had to be revised in the face of the adverse impact of Covid-19 on revenues and increased expenditure needs on health and economic stimulus amongst others, DMO explained.

In spite of DMO’s reasoning, some stakeholders are concerned that Nigeria remained dependent on oil as the sole revenue generating resource for such a long time without diversification to other revenue generating sources.

Former Vice President Atiku Abubakar raised the stakes when he accused government of mortgaging the future of Nigerians and having nothing to show for amassing such debt.

“Nigeria’s sovereignty may have been traded for foreign loans and God forbids our inability to service those loans, the lender country would take ownership of choice infrastructure on the Nigerian soil,” he said.

President of the Progressive Shareholders Association of Nigeria, Boniface Okezie, says the debt stock is cause for worry due to the government’s declining revenue.

Disagreeing with critics, Information and Culture minister, Lai Mohammed, said the ratio of debt to GDP was one of the lowest in the world at 19 per cent as at December 31, 2019.

Unlike in the past when the nation borrowed to “service the crass indulgence of a few fat cats”, the loans being obtained by the current administration were being primarily used to finance infrastructure — roads, railways, bridges and power.

He added that the loans also were long-term in nature, which would benefit present and future generations.

President Muhammadu Buhari on September 28, at a virtual meeting with Presidential Economic Advisory Council, justified the borrowing.

Record-breaking $86bn debt leaves Nigerians stunned

VS

China owns 72 percent of Kenya’s external debt, which stands at US$50 billion. Over the next three years, Kenya is expected to pay US$60 billion to the China Exim Bank alone. In a recent report, Kenya’s auditor general has warned that the country risks losing control of Mombasa port if it defaults on loans from the China Exim Bank. The terms for a US$2.3 billion loan for Kenya Railways Corporation specify that the port’s assets are collateral, and they are not protected by Kenya’s sovereign immunity due to a waiver in the contract.

China’s belt and road initiative: Implications in Africa | ORF

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MY TAKE:
Haiingii akilini wakati GDP ya Nigeria ni kubwa compared na ya Kenya

Kenya’s debt races past Ksh.7 trillion​

By Kepha Muiruri For Citizen Digital
Published on: October 12, 2020 10:00 (EAT)



File Photo of The National Treasury.

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In Summary​

• The roughly Ksh. 1 trillion addition in the public debt registry is largely attributable to an unrestrained borrowing following the advent of COVID-19 pandemic in the country.
• The significant accumulation of debt in Kenya has coincided with the new credit lines from Kenya’s development partners with the facilities meant to cushion the economy against the adverse effects of the pandemic.
• According to the PBO, Kenya’s stock of debt is expected to hit Ksh.7.5 billion next year while the Ksh.9 trillion ceiling approved by Parliament last year will be surpassed at the end of the 2022/23 financial year.

Kenya’s stock of debt zoomed past the Ksh.7 trillion mark in August wounding up at Ksh.7.1 trillion from a flat Ksh.6 trillion at the start of 2020.

The roughly Ksh. 1 trillion addition in the public debt registry as revealed in the latest data from the National Treasury and the Central Bank of Kenya (CBK) is largely attributable to an unrestrained borrowing following the advent of COVID-19 pandemic in the country.

Kenya’s debt stood at a flat Ksh.6 trillion a year ago, translating into an 18.3 per cent growth in the stock of loans as of August this year.

The highest accumulation of the debt has been recorded between March and August when an estimated Ksh.800 billion was added to the stock.

The significant accumulation of debt in Kenya has coincided with the new credit lines from Kenya’s development partners with the facilities meant to cushion the economy against the adverse effects of the pandemic.

For instance, Kenya booked Ksh.81.3 billion ($749 million) from the International Monetary Fund (IMF) Rapid Credit Facility (RCF) and Ksh.108.5 billion ($1 billion) from the World Bank Development Policy Operations (DPO).

External debt has grown by 15.6 per cent to Ksh.3.7 trillion between March and August while local debt has expanded by 9.7 per cent in the same period to Ksh.3.4 trillion.

The majority of the domestic debt, 67.12 per cent is held in Treasury bonds (T-bills) with banking institutions holding a bulk 55.1 per cent of the local loans.

The expansion of Kenya’s debt stock is expected to continue piling pressure on the country’s debt sustainability which has become severed under the COVID-19 pandemic.

In its latest report, the Parliament Budget Office (PBO) has warned of increased debt pressure amidst what are low domestic revenues against increased spending needs under the global health crisis.

According to the PBO, Kenya’s stock of debt is expected to hit Ksh.7.5 billion next year while the Ksh.9 trillion ceiling approved by Parliament last year will be surpassed at the end of the 2022/23 financial year.

Kenya is already staring at a substantive debt refinancing crisis as it currently deploys 49 per cent of ordinary revenues in debt servicing.

This means for every shilling collected, 49 cents go to debt repayment while only a mere 51 cents are left behind for budget implementation.

“The 2020/21 financial year will present difficult economic conditions for fiscal consolidation measures to maintain debt at sustainable levels,” noted the PBO.

Additionally, Kenya’s domestic economy is under pressure from the pandemic while the international financial markets are at the moment non-conducive for debt refinancing.

Moreover, the Kenya shilling has marked a depreciation trend signalling higher costs of external debt refinancing which by large denominated in dollar terms.

The National Treasury is expected to borrow Ksh.951.4 billion in net terms by June according to new revisions contained in the draft Budget Review and Outlook Paper (BROP) to include Ksh.396.8 billion in external debt and Ksh.554.6 billion in local debt.

Externally, commercial financing will represent a partly Ksh.6.2 billion with semi-concessional loans representing Ksh.124.1 billion.

Project loans are estimated at Ksdh.244.1 billion while programme loans are projected at Ksh.202 billion of which Ksh.150 billion is an expected World Bank DPO loan.

Kenya’s debt races past Ksh.7 trillion - Citizentv.co.ke