Nigeria’s domestic debt is piling up very fast. However, in the midst of its worst recession in 20 years, it is expected that borrowing will rise.
As at March this year, Nigeria’s national debt has risen to NGN19.15 trillion from NGN17.36 trillion it was in December 2016, In essence, Nigeria has taken in NGN1.79 trillion more debt in the last three months.
These debts were increased recently in Nigeria’s borrowing programme which was a combination of USD1 billion Eurobond and another USD500 million raised in March.
While Nigeria’s debt seems substantial from external sources, what is actually worrying is that a vast majority of the sovereign debt were borrowed from local sources. According to the Debt Management Office, about 70% of the total borrowing was from local sources. On a dollar (USD) basis, out of the USD62.91 billion total government debt profile, external debt was USD13.80 billion compared to USD49.11 billion domestic debt.
The federal government is sucking out liquidity from local financial markets through bonds and treasury bills that are attractive to local banks and foreign investors.
The victim of this skewed debt programme is local businesses, particularly, the small and medium scale businesses who have now been priced out of the market. While the government borrows at 16-17%, businesses are borrowing at 24-25% per annum. This discriminatory rate system is not only harming businesses but reducing Nigeria’s growth potential in a recession that is striving to go away.
Last week, Nigeria’s upper chamber legislators summoned the Central Bank of Nigeria to explain why the interest rate is high for businesses across the country.
The fact is that Nigeria’s banks and financial services providers have been used to collecting government’s money and borrowing the same money to the government at an higher rate. While the treasury single account, TSA has taken the money from them, they now borrow depositors’ money to the government as the safest way to get returns on investment.
For the government to correct the anomaly interest rate regime, the infrastructure decay has to be addressed. Access to power which is a major cost component for manufacturers and service industry at large must be fixed. When businesses borrow to pay for uncontrolled power and unnecessary costs instead of capital expenditure across their business value chain, the possibility of default and a low borrowing appetite will take the day.