Nigeria’s debt office says debt rebalancing has reduced interest rate, improved private sector lending

Nigeria’s Debt Management Office (DMO) has explained that its decision to rebalance its debt portfolio has resulted in lower interest rates for the benchmark FGN Securities from about 18.5 percent in January 2017 to 11-14 percent in the first half of 2018, this is just as it has freed up space for more private sector lending by the banks.

Patience Oniha, the director general of the debt management agency, disclosed this in Abuja Tuesday while presenting the update on the country’s public debt as at June 30, 2018.

Oniha said noted that with the redemption of about N840 billion of Nigerian Treasury Bills (T-Bills) more funds were available for lending by banks to the private sector.

The DG gave the country’s debt stock as at June 30, 2018, at about N22.4 trillion, or $73.2 billion, adding that the ratio between domestic and external debt stood at 70:30 compared to 73:27 in December 2017.

On the other hand, the ratio between long-term domestic debt to short-term domestic debt was 76:24 in June 2018 compared to 72:28 in December 2017.

The figures presented revealed that the total public debt which encompasses the domestic and external debt stock of the federal and 36 state governments and the Federal Capital Territory stood at N22.38 trillion or $73.21 billion as at June 30, 2018.

This figure was a marginal increase of 3.01 percent over the public debt stock for December 2017.

The increase in the public debt stock over the 6 months period was due largely to the $2.5 billion Eurobond issued in February 2018.

When compared to the debt data for March 2018, the public debt stock actually decreased by 1.44 percent from N22.707 trillion in March 2018 to N22.38 trillion in June 2018.

The decrease was due to a 3.38 percent decline in the FGN’s domestic debt stock between March and June 2018.

There were however marginal increases of 0.07 percent in the external debt stock and 2.75 percent in the domestic debt of states.

A major highlight in the public debt data was the consistent decrease in the FGN’s domestic debt which declined from N12.589 trillion in December 2017 to N12.577 trillion in March 2017 and N12.151 trillion in June 2018.

This reduction in the FGN’s domestic debt stock arose from the redemption of N198 billion Nigerian treasury bills in December 2017 and another N639 billion between January and June 2018.

The DMO had earlier raised a total of $3 billion through Eurobonds to refinance maturing domestic debt as part of the implementation of the debt management strategy for the purpose of substituting high-cost domestic debt with lower cost external debt to reduce debt service costs for the Government.

The DMO, however, noted that the implementation of the public debt management strategy whose overall objective is to ensure that Nigeria’s debt is sustainable is already yielding positive results.

One of the beneficial outcomes is the rebalancing of the debt Stock; the ratio of domestic debt to external debt inching towards the target of 60:40 and the target of 75:25 between long-term domestic debt and short-term domestic debt.

Whilst declining interest rate may have been cheery news for Nigerian producers and manufacturers, analysts say it has contributed to foreign capital flight.