The World Bank has faulted the decision by President Muhammmadu Buhari, to borrow foreign loans to finance the 2017 budget.
The World Bank who spoke through its Senior Economist, Gloria Joseph-Raji, said that the cost of borrowing or paying interest on Nigeria’s debt was not sustainable, as revenues to make such payment had dried up.
She spoke with Exclusively on the sidelines of the lunch of Africa Pulse, a biannual report on Africa.
Recall, that Buhari through his Minister of Finance, Kemi Adeosun, had at a press briefing rounding off the World Bank/International Monetary Fund annual meeting, in Washington DC, United States, had said that Nigerians would have to tolerate more borrowings in the short term for the government to deliver critical infrastructure.
In a swift reaction however, the World Bank said that it makes no economic sense to embark on a borrowing spree.
She said in 2015, the country’s debt to revenue ratio stood at 35 percent, but rose to 60 percent by 2016, reflecting a reduction in government revenues, and rising debt profile, thereby raising a question about the debt sustainability.
She said in 2015, the country’s debt to revenue ratio stood at 35 percent, but rose to 60 percent by 2016, reflecting a reduction in government revenues, and rising debt profile, thereby raising a question about the debt sustainability.
Joseph-Raji said: “Nigeria has a decent debt-to-GDP ratio, currently about 19 percent. It is the debt to revenue ratio that is of concern, and that rate is a sustainable issue. That is of concern to us, and that is also of concern to the government.
“The government is aware that the debt is looking more unsustainable from the point of debt service to revenue ratio. The estimate we had for last year at the federal level was about 60 percent. That is coming from about 35 percent in 2015.
“That reflects the substantially lower revenues that Nigeria recorded last year. Even among the State Governments; we know that a lot of State Governments are servicing a lot of debts from their federation account allocation. So, there is really going to be a sustainable issue emerging.”
The World Bank Expert said she was concerned about the sustainability of the country’s debt, especially the huge domestic borrowing with high-interest rate, which prompted the Debt Management Office to come up with a strategy to re-balance the country’s debt portfolio.
She said: “The DMO released the Debt Management Strategy 2016 to 2019, last year. The strategy was to re-balance the debt portfolio from more of domestic now to more of foreign. That is because of the debt servicing cost.
“Before now we had a debt portfolio of about 80 percent domestic to 20 percent external. We know that the debt servicing cost of domestic debt is really high. Treasury bill is an average of 18 percent; the FGN bonds, from 16 percent. The government is trying to re-balance its portfolio with foreign debt, which has much lower interest rate than domestic debt. That is why this year you have seen them go for Eurobonds, with a total of $1.5 billion in the first quarter of the year. They also did Diaspora bond of $300 million. If you look at the yield on those bonds, they are much less than 10 percent.
“The government is aware that there is a sustainable issue, and that is what they are trying to correct by taking more foreign debt.”
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