N11.84tr: Nigeria’s Debt Profile – Frc
BEVERLY HILLS, March 07, (THEWILL) – The Fiscal Responsibility Commission (FRC) has revealed that the states and Federal Government are indebted to the tune of N11.84 trillion.
According to the 2015 Annual Report of the Commission, the debts include domestic debt (N9.73 trillion or 82.20%) and external debt (N2.11 trillion or 17.80%).
Of the total debt stock, the Federal Government has about N10.29 trillion, comprising domestic debt of N8.84 trillion or 85.96% and external debt of N1.44 trillion or 14.04% while all the 36 states and the Federal Capital Territory (FCT) as at the end of 2015 were owing N1.55 trillion.
The Commission said there were no clear indications that all tiers of government were borrowing with the approvals of the appropriate legislative body adding that there was no evidence of compliance with the provisions of the Fiscal Responsibilty Act 2007.
It also accused banks of lending to all tiers of government, their agencies and corporations in breach of the Fiscal Responsibility Act 2007.
“The capital market borrowing component of FGN debt stock stood at N8.84 trillion, representing 85.88% of the total debt stock and almost the entire domestic borrowing (99.99%) as only N8.00 billion was raised through commercial banks,” the report stated.
“The debt stock of all the 36 states, including FCT, as at the end of 2015 totalled N1.55 trillion. This is made up of domestic debt of N887.22 billion or 57.24% of total debt and external debt of N662.75 billion or 42.76% of total debt.
“The component of domestic debt was; N60.95 billion (6.87%) for capital market borrowing and N826.27 billion (93.13%) borrowing from commercial banks.
“Analysis of the total domestic debt of the Federal Government, states and FCT amounting to N9.73 trillion revealed the Federal Government component of N8.84 trillion representing 90.85%. The States and FCT on the other hand accounted for N887.22 billion or 9.15%.
“Further analysis revealed that the N8.90 trillion domestic debts raised from the capital market was in the ratio of 93.71% and 6.29% for the States and FCT. Conversely, the proportion of borrowings from commercial banks weigh heavily in favour of the States and FCT at N826.27 billion or 99.01% while the FG accounted for the N8.00 billion representing 0.91%.
“The bulk of the total domestic debt was contracted by the FG which was 90.88% as against 9.12% for the states and FCT. The composition of the domestic debt indicated that the greater part was obtained from the capital market.
“The fact that the bulk of FG borrowing was from the capital market apparently suggests that it mobilised resources towards financing long term capital projects aimed at providing critical infrastructure. The FG capital borrowings in 2015 consist of 65.73% raised through the issuance of Bonds, 31.38% Treasury bills and 2.90% Treasury bonds.
“The debt profile of the states and FCT was similar to that of the FG in that there were more of domestic debts than external debts. The states and FCT borrowed from commercial banks.
“Seven states borrowed from the capital market along with the FG, namely Benue, Cross River, Gombe, Kogi, Oyo, Plateau and Zamfara. These States, in addition to borrowing from the capital market borrowed from commercial banks as well.
“Only Anambra State borrowed neither from commercial bank nor the capital market. In 2014, all states and FCT borrowed from commercial banks with only Bauchi State borrowing from capital market in addition to commercial banks.
“Analysis of the borrowings of both the FGN and states revealed that all outstanding external debts as at 31 December, 2015 were for capital expenditure and human development in line with the provisions of FRA 2007.
“However, there was no clear evidence that the loans were obtained on concessional interest rate of 3% or less. Similarly, it could be ascertained that all the loans were on reasonably long amortisation periods of not less than 10 years.
“The categories of the external debt are multilateral agencies 70.54%, bilateral agencies 1.47% and commercial loans 27.99%. Loans from multilateral agencies were largely within the 3% concessional interest rates while the commercial loans are well above 3% interest rate.
“For domestic debt, there were no clear indications that all tiers of government were borrowing for only capital expenditure and human development at 3% interest rate with the approvals of the appropriate legislative body and in compliance with the provisions of FRA, 2017.
“In order to keep the domestic debt within reasonable control, it is desirable for domestic borrowing to be rationalised.
“As in previous years, most of the domestic loans in 2015 have maturity period of between five to 20 years with most of the loans having no specified purpose for which they were meant.”
The Commission revealed that despite several letters and reminders, some banks continued to lend to state governments/agencies without obtaining proof of compliance with FRA as clearly stipulated.
“It was noted that such lending are indeed contractual arrangement with the banks for repayment via deductions from the States Statutory allocations. This is contrary to Section 45 (2) of the FRA, 2007 which stipulates that 'all lending by banks and financial institutions in contravention of this Part (Part X) shall be unlawful,” it said.
“Against this backdrop, any contractual arrangement undertaken as debt transaction(s) between states/ their agencies with any bank(s) without compliance with section 45 (2) is unlawful.
“In effect, all commercial banks still lending to governments in the Federation, their agencies and corporations are not only in breach of the FRA 2007, but such lending are clearly unlawful and may be irrecoverable.”