The Federal Government spent a total of N923.3Bn on servicing domestic debts in the first three months of the year, statistics obtained from the Debt Management Office have shown. A breakdown of the statistics shows that the Federal Government spent a total of N643.63Bn on the payment of interest, while N279.67Bn was expended on the redemption of matured Nigeria Treasury Bills between January and March 2018.
Interest rate on FGN Bonds gulped a total of N411.8Bn in the first quarter of the year, while interest payment on the Sukuk Bond added up to N8.17Bn. Similarly, the Federal Government paid N223.42bn as interest on the NTBs and N241.87Mn as interest on FGN Savings Bonds.
The cost of servicing the debt is a reflection of the country’s rising debt profile, especially domestic debt although efforts are being made to reduce the domestic debt commitment in favour of more foreign loans. In accordance with this strategy, the World Bank only last week announced that it would support seven projects in the country this year with a loan of $2.1Bn, while plans to borrow from other foreign sources are on.
In the first quarter of 2017, the Federal Government spent a total of N449.06bn on the payment of interest on loans, while it paid N25Bn on the redemption of matured treasury bonds. This means that the Government spent N194.57Bn more on interest in the first quarter of this year than it paid in the first quarter of 2017.
In percentage terms, the interest paid on domestic debt in the first quarter of this year was 40.61 higher than what the Federal Government paid as interest in the first quarter of 2017. A breakdown of the interest paid on domestic debt servicing in the first three months of 2017 showed that interest payment on the NTBs consumed N102.31Bn.
Similarly, interest payment on FGN Bonds gulped a total of N346.51Bn, while interest payment on treasury bonds consumed N241.41Mn. In a document entitled: ‘Nigeria’s Debt Management Strategy 2016-2019’, the DMO stated that at least 30 per cent of the Nation’s domestic debt would fall due within a one-year period.
It said, “The implied interest rate was high at 10.77 per cent, due mainly to the higher interest cost on domestic debt. The portfolio is further characterised by a relatively high share of domestic debt falling due within the next one year. “Interest rate risk is high, since maturing debt will have to be refinanced at market rates, which could be higher than interest rates on existing debt. The foreign exchange risk is relatively low given the predominance of domestic debt in the portfolio.”
Rather than refinancing local debts falling due, the DMO has had to take some foreign loans to redeem some maturing local debts, which it believes come with higher interest rates. The servicing of Nigeria’s domestic debt gulped N1.23Tn in 2016, while it consumed a total of N1.48Bn in 2017.