By Chioma Obinagwam
BudgIT, a civic organization that applies technology to intersect citizen engagement with institutional improvement in order to facilitate societal change has opined that the $10 billion rise in public debt stock recently announced by the Vice President, Prof. Yemi Osinbajo, is vague.
The organization noted that this is borne out of its recent work on expanding public debt and has armed her with facts to critically examine Nigeria’s debt stock profile.
Debt stock refers to the total value of the debt that a nation owes to all lenders.
“We opine that the current rise of $10 billion in public debt stock does not tell the full story. To say the least, this can be misleading. Arguments explaining that the entire Federation borrowed only N3 trillion in three years since the debt stock rose by $10 billion has been the trending narrative,” it noted.
“However, It is important to deconstruct the Federal Government (FG) debt into external and domestic debt to get a full understanding for purposes of accountability. The total FG Debt Stock totals the sum of External Debt and Domestic Debt. The Debt Management Office figures showed that FG external debt alone grew from $7.34 billion in June 2015 to $17.83 billion in June 2018, that’s an additional $10.49 billion in three years,” the organization continued.
BudgIT further stated that the domestic debt of FG as at June 2015 was N8.39 trillion while it stood at N12.15 trillion as at June 2018 indicating an increase of N3.76 trillion in three years.
At an exchange rate of N305/$, it noted, translates to an increase of $12 billion.
“That means the total increase in external and domestic debt is $22 billion,” BudgIT stated.
“It is public knowledge that the Naira was devalued in recent years, and this singular act shrunk and expanded a lot of indexes. Those who put forward $10 billion are comparing the wrong values without adding the important information that exchange rates for the times are different,” the civic group added.
BudgIT further noted that from its research, it has observed that this administration (FG alone) borrowed $22 billion in three years but due to naira devaluation gains but total public debt stock (for the entire Federation) increased by $10 billion, which makes current claims true.
However, it noted, it is important to state that it is true that public debt now $73 billion, grew by $10 billion, because FG domestic debt in USD terms was $42.63 billion in June 2015 and $39.75 billion as at June 2018.
“This does not mean that FG borrowed less domestic debt in three years. It only goes to show that the domestic debt of FGN grew from N8.39 trillion to N12.15 trillion from 2015 to 2018 respectively. Devaluing exchange rate from N196.95/$ to N305.7/$ made the domestic debt in 2018 relatively smaller in USD terms.
“For clearer understanding, let’s use this analogy. It is like borrowing N1,000 in 2015 which is $5 at N200/$. If you borrow additional N500 at a new exchange rate of N300/$, you now owe N1,500 but you still owe an equivalent of $5. It can then clearly be shown that the Naira equivalent of the total debt has risen from N12.1 trillion to N22.4 trillion, a growth of N10.3 trillion.
“It is important to classify debt into two categories considering that external debt will be paid in USD or other currencies while domestic debt will be settled in Naira. This invariably has consequences for debt servicing costs in the near term,” it explained.
BudgIT is hoping that the “marginal” increase in debt in USD terms does not unleash excessive borrowing by the Federation considering that public revenue in USD equivalent has also severely shrunk.
The organization further disclosed that states’ domestic debt rose from N1.69 trillion in June 2015 to N3.477 trillion in June 2018. Adjusting this for USD also does not tell the full story.
“States’ debt costs are deducted in Naira equivalent at prevailing “official” rates. However, devaluation provides adjusted gains especially for monies earned in USD such as oil & gas revenues but losses for those earned in Naira such as CIT & VAT, when converted to USD.
“The devaluation of the Naira has impacted directly on the purchasing power of Nigerians, with income severely shrunk in Naira terms while those who export especially in non-oil sector have seen relative gains.
“BudgIT believes that acquiring debt is not bad if put to judicious and profitable use for the citizenry but we request more transparency on self-liquidating capital projects that such borrowings are tied to. We believe Nigeria should expand total revenue to at least meet its recurrent costs, in line with the Fiscal Responsibility Act
“A core part of our work is to provide more transparency to the numbers, demand accountability, and seek clarification from public institutions when necessary. This we would unrelentingly continue to do,” it stated.
