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Currency depreciation, inflation push Nigeria’s debt stock above N12 trillion

By By Chijioke Nelson   |   16 November 2015   |   2:12 am  

DEBTDMO says bond market stands without foreign indexes
A MIX of devaluation and depreciation of the naira, coupled with eventual inflationary trend, may have raised Nigeria’s obligation to its debt stock payment to N12.12 trillion.

Specifically, the eroding value of the currency, which now requires more Naira to offset the debt stock when denominated in dollar terms, has pushed the nation into about N920 billion deficit in its obligation to creditors.

Though the national debt stock, made up of federal and states’ external obligations, as well as domestic borrowings, were put at $67.7 billion as at December 31, 2014, but reduced to $63.8 billion as at June 30, 2015, the $67.7 billion December balance worth ₦11.2 trillion at the exchange rate of N166/$, moved to ₦12.06 trillion at a reduced debt stock of $63.5 billion in March 2015, based on exchange rate of N197/$. In June 2015, the debt stock rose to $63.8 billion or ₦12.12 trillion, at the exchange rate of N197/$.

The persistent loss in value is attributable to the first and second technical devaluations by the Central Bank of Nigeria, in an effort to establish a stable exchange rate position for the local unit.

Further breakdown of the debt figures showed that Federal and States’ external debt at $9.5 billion was worth ₦1.63 trillion at exchange rate of ₦168/$.

The figure also lost value to the tune of ₦230 billion barely two months after, due to second devaluation, at ₦197/$ to ₦1.83 trillion at a debt profile of $9.5 billion.

Also, the domestic debt of the Federal Government at ₦47.1 billion worth ₦7.9 trillion, as at December 31, 2014, lost ₦500 billion in value six months later, as the reduced debt profile at $42.6 billion now worth ₦8.4 trillion.
Although the rising inflation still remained in the single digit target, it has moved from eight per cent to 9.4 per cent, defying all liquidity tightening measures of CBN, while maintaining month-on-month increases.

CBN had in November 2014, tactically devalued the Naira from N155.7 to N168/$ and barely three months later, it devalued the local unit further to ₦198/$.

The development, which means that the country will give more naira per dollar in an effort to offset its dollar-denominated bills, also showed that the purchasing power of the currency has eroded for those whose bills fall under the local unit.

It also raises further doubt on whether the persistent clamour for the devaluation of the currency serves the interest of the overall economy.

Still, the estimation of ₦920 billion loss appears to be conservative, given the fact that the domestic debts of sub-national governments (states) were denominated in dollar at the 2013 exchange rate of ₦155.7/$, which is not attainable now.

For example, if the states’ domestic debt profiles are denominated in current dollar exchange rate at ₦197/$ the total estimate at ₦2.1 trillion would push losses to a N1 trillion mark.

The immediate past government, in its 2015 fiscal plan, made provision of about ₦943 billion for debt serving; a paltry of sum of about ₦563 billion for capital expenditure and whooping ₦2.6 trillion for recurrent expenditure.

Till date, no capital expenditure vote has been released for the execution of development projects, which may not be unconnected to plummeting revenue profile of government due to the lingering oil price crisis.

Meanwhile, DMO said the nation’s securities market is a product of strong, well-established and robust domestic bond trading that had been developed through inherent local capacity without any foreign facilitation.

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