Nigeria loses N6.33tr to naira devaluation

Central Bank of Nigeria's (CBN) governor Godwin Emefiele. / AFP PHOTO / PHILIP OJISUA

Central Bank of Nigeria’s (CBN) governor Godwin Emefiele. / AFP PHOTO / PHILIP OJISUA

• Real debt stock hits N19tr

Nigeria will spend an equivalent of its 2016 budget to service debts as its currency, the naira, continues to lose value against the United States dollar.

Devaluation has put the real value of the country’s debt stock at around N18.9 trillion, when considered at the official rate of N307.79 per dollar, according to figures from the Debt Management Office.

The additional naira stock (per dollar) that would be needed to service existing debt will cause the country to lose about N6.33 trillion, a near-equivalent of the 2016 budget, when compared to N12.6 trillion at N197 per dollar as at December 31, 2015. It is also a disincentive for future external borrowing despite a positive debt-to-GDP ratio.

“Hiding under the mantra of low debt-to-Gross Domestic Product is deceitful,” a public sector financial analyst, who asked not to be named, told The Guardian in Lagos at the weekend. “The economy is in recession and cannot churn out those activities anymore.

“If we compare our debt service bill without revenue earnings ratio, it is not sustainable and that is where foreign investors will be looking at to price our international bonds,” the public sector analyst said.

“With more than 21 per cent of the entire budget dedicated to debt service and more than 33 per cent of the total budget being in deficit, the budget performance is now made worse with near-non-activities called recession. The reality is daunting,” the source said.

The additional N6.33 trillion required to pay off Nigeria’s external debt represents 20.58 per cent, a one-fifth of its estimated $296 billion, or N91 trillion GDP.

The national debt stock consists of external obligations for both federal and state governments estimated at $11.3 billion (about N3.5 trillion); domestic obligations of $37.5 billion (about N11.5 trillion) and $12.7 billion (about N3.9 trillion) for federal and states respectively.

The devaluation was necessitated by the plummeted foreign exchange earnings, which created huge unmet demand due to the shortage of dollar and naturally erased the value of the local currency through speculations.

The debt report released by the Debt Management Office came two weeks behind schedule and put the debt stock by June 30, 2016 at $61.45 billion. The report stressed that the figure was higher in naira value than the $71.66 billion posted on March 31, 2016.

The amount, also at current official rate of N307.93 per dollar is higher than the estimated $65.43 billion debt worth N12.6 trillion as at December 31, 2015, at N197/$.

With a planned N1.8 trillion borrowing to fund the N2.2 trillion deficit in 2016 budget, from a mix of dollar-denominated and local debts, the country’s obligations and associated service bill will rise to new record high soon.

Already, the 2016 budget had a debt service provisioning in excess of N1.4 trillion, representing more than one-fifth of the entire budget plan.

The combined forces of devaluation and inflation, also took toll on the nation’s economic activities between December 2014 and 2015, eroding naira value, as well as pushing the sovereign debt stock to ₦12.12 trillion.

The Central Bank of Nigeria (CBN) had in November 2014, tactically devalued the naira and barely three months later, it devalued the local unit further to ₦199/$.

Besides the concern for eroded value of the currency, which requires more naira to offset the debt stock when denominated in dollar terms, a conservative estimate of about N920 billion was lost to the then exchange rate, occasioned by devaluation, even at lower debt stock of $63.5 billion (June 2015), compared to $67.7 billion in December 2014.

The national debt stock as at then showed that the Federal and States external obligations as at December 31, 2014, stood at ₦11.2 trillion ($67.7 billion), but moved to ₦12.06 trillion ($63.5 billion) three months later and ₦12.12 trillion ($63.8 billion) as at June 30, 2015.

Given the eroding value, Nigeria lost about ₦920 billion to devaluation, with respect to the debt stock, representing 8.2 per cent loss over the actual value in six months.

Also within the period under review, the inflationary trend has been on persistent upward movement. Although still in single digit, it moved from eight per cent to 9.4 per cent, trend, defying all liquidity tightening measures of the Central Bank of Nigeria.

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 were denominated in current dollar exchange rate at ₦307.79, the total estimate would push losses far beyond N1 trillion mark.



10 Comments
  • vic

    godwin emefiele, the house boy of buhari and a forex fraudster has intensely contributed to the economic ills of nigeria. daily, under his very nose, the nigerian banks sell pounds sterlings and dollars at black market rates to its overseas customers at the atm machines abroad. this cbn governor has been behind the forex manipulation by these commercial banks of which he is the chairman. he is simply supervising forex fraud by these commercial banks in nigeria today. under the circumstance, there is no end to naira devaluation. as a forex house boy to buhari, buhari has ignored all public calls for the investigation of godwin emefiele who is economic illiterate as amply demonstrated by daily naira devaluation. is it not the central bank governors who aided and abetted politicians to loot the central bank of dollars, thus ruining the naira which is now cheaper than the toilet paper??????

    REMEMBER, GODWIN EMEFIELE, THE CBN GOVERNOR, A FAITHFUL HOUSE BOY OF BUHARI, IS A HOAX AND A TOTAL FRAUD AS I HAVE BEEN SAYING FOR THE PAST 2 YEARS ON THESE COLUMNS. THIS ECONOMIC ILLITERATE HAS SIMPLY FINISHED NAIRA AND YET THERE IS NO END IN SIGHT.

    • William Norris

      Emefiele just wants to keep his job. He was devaluing the naira to near black market rates until Buhari won the election. Then he bowed to the President’s demands and started supporting the naira. That’s when the difference between official and black market rates really expanded.

      The man just wants to keep the job. Simple and understandable. Times are hard.

      • vic

        you are perfectly right in your assessment and conclusion.

  • With the way things are going at the parallel market, dollar will hit between five hundred and six hundred naira before year end. And a thousand by the end of next year. Then the interbank rate will follow suit.

    The CBN has eventually “killed” the naira.

    • dr paul ojeaga

      Shut up and leave cbn alone. Tell your president to come up with industrialisation blue print. The Nigerian economy is strong fundamentally

      • The better word is resilient. And the CBN is adding to its complications.

    • William Norris

      And so what? The CBN is actually holding the naira up at a higher value than it should be. In other words right now Nigeria is SUBSIDIZING dollar purchases at the CBN. That is wrong and harmful to the economy.

      A lower and devalued naira is beneficial to the economy in the long run. The CBN needs to float the naira and let the economy adjust and recover.

      Most Nigerians don’t understand these things. Have a nice day.

      • Float the Naira and leave it at the whims and caprises of currency speculators? Where the parallel market becomes the benchmark for interbank adjustment?

        There are not enough mechanisms to ensure a steady rate but there is enough opportunity for speculators to make money. And so down the spiral it goes. The CBN tied their own hands and the system can’t handle it.

        A strong mechanism to ensure a steady real rate is something that we can’t do without.

        • William Norris

          The parallel market is the REAL MARKET. A sign of a developed economy is the absence of a parallel or black market because it should be almost equal to the Central Bank or government rate. In China the difference between rates is something like 0.001% while the difference in Nigeria right how is around 50%

          Speculators will always try to make profits where they find a valuation that doesn’t make sense and a 50% difference is VERY ATTRACTIVE. In 1987 the UK was urged to abandon a fixed peg on their pound sterling. They refused and that was how George Soros became a famous trader – he speculated AGAINST the Central Bank of England and made a fortune when the currency was eventually devalued. Read about it here –

          http://www.investopedia.com/ask/answers/08/george-soros-bank-of-england.asp

          The Swiss government was forced to devalue in 2014 I think; China is having a hard time controlling the value of its currency. Recently South Sudan and Argentina both floated their currencies. THE POINT IS THAT THE MARKET WILL ALWAYS WIN IN THE LONG RUN. Any attempt to circumvent that truth will always damage the economy of the country concerned.

          I don’t have a time for a long explanation. Just take it as it is,

          (1) the DIFFERENCE between the CBN and black market naira rate indicates that the naira has NOT been floated.

          (a) that is in effect a program of forex subsidy, currency manipulation, management or fixing, whatever you call it

          (b) only countries with massive productive base and forex reserves can sustain such a program

          (c) Nigeria doesn’t have a massive productive base or forex reserves. In fact the major product from Nigeria is crude oil and the price has fallen drastically.

          (2) The economy will continue to perform poorly or suffer from forex induced problems until

          (a) the naira is floated *permanent solution*

          OR

          (b) there’s a major recovery in crude oil prices *temporary solution*

          There are details of course but since you seem very passionate about the issue I hope you’ll take the time to read widely and get informed. Basically, a country that wants a strong currency must have a very productive populace. Nigerians are NOT productive.

          Have a good night.

  • William Norris

    This article is of questionable validity. The reasoning is faulty and glaringly so, to the point I’m second guessing what I know. Being that I’m no economist I won’t go further than that.

    Most of the national debt is owed to domestic lenders and was borrowed as naira.

    The foreign debt borrowed in dollars is $11.3 billion. Devaluation will make this portion harder to repay though I’ve read and believe the interest rates are low.

    The domestic debt borrowed as naira is about $51 billion or ₦16 trillion. Devaluation of the naira makes it EASIER to repay the domestic debt.

    The above is the genius of Ngozi Okonjo-Iweala. If you must borrow, borrow in your own currency. Banking and macroeconomic reforms made it possible for Nigerian banks to lend and government to borrow. The debt profile itself is now well managed and transparent and is now useful as a measure of fiscal and general economic stability. That’s the yield curve thing.

    Anyway Nigerian newspapers need to be more professional and robust in their reporting. I thought the Guardian had turned a new leaf. Alas….not so, it’s just cosmetic.

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