ARE WE GETTING BROKE?? NIGERIAN DOMESTIC DEBT CROSSES THE N6TR MARK

Nigeria’s debt debacle is no more news at least on this blog, however whenever a landmark is reached in our borrowing spree it calls for a special announcement. The Debt Management Office released the half year Domestic Debt profile for Nigeria which showed Nigeria now stands at N6.1tr ($38m) in domestic debts. As at December last year, this figure was just N5.6tr an incredible 8.93% rise on just 6 months. It was N5.2tr in June 2011 and N3.76tr in June 2010.

Digging further into our debts shows FGN Bonds have risen 54% from N2.4tr in June 2010 to N3.7tr in June 2012. Treasure Bills have more than doubled in the last 2 years from N901m in June 2010 to N2b in June 2012. Coincidentally, the dramatic rise of our local debts began in the GEJ years, since 2010 when he became president.

It is true that Government borrows money frequently to fund its day to day operations and to bridge fiscal receipts, however the cost at which it is borrowing and what it is being used for has a lot to determine whether a country will go broke or not. TB’s and Bond yields in Nigeria are in the double digits both hovering between 12% and 16%. Most of these bonds have just been issued and remain payable by the government. Being that recurrent expenditure gulps almost 70% of Government spending, the fear is that there is no future benefit expected from the huge cost that the government is paying.

Thankfully the government has realized the danger this posses to the debt holders (banks especially), the borrowers and the wider economy. At 20% the government is still way below the 30% debt sustainability level target is set for itself. N560b already is earmarked for debt service in a period of relatively high oil prices. At this rate interest payments can only go up, but will oil price follow?