Ms. Patience Oniha, Director-General of the Debt Management Office (DMO), stated on Monday that there is a possibility that debt service costs may increase before the end of the year.
The director general ascribed this to the country’s meager earnings.
Oniha, who appeared before the House of Representatives committee on Debt and Loans to defend the Office’s 2023 budget, stated that the government had engaged in a practice known as “ways and means” in which the federal government borrows money directly from the Central Bank of Nigeria.
She stated that the international market has closed its borrowing doors, making it harder for the government to borrow money.
However, the DG stated that steps were included in the budget for 2023 to service the loans, emphasizing that Nigeria had not yet defaulted.
She said: “There is a line called ‘ways and means advances. This is a process where the Federal Government borrows from the Central Bank directly. This has been in the media a lot. It is when the government runs an overdraft with the Central Bank. It is not free, you pay interest on it. For clarity, the ways and means are under the management of the Office of the Accountant General but supervised by the Minister of Finance.
“In 2022, no provision was made for payment of interest on ways and means. But if you look at the actual, you will discover that some amount has been incurred on ways and means advances. It is not free. So, we pay interest.
“For domestic debt, the budget was N2.5 trillion, but we have spent N1.86. External debt is N866 billion compared to N1.123 trillion. The figures are for three quarters. On the Sinking Fund, we have N286 billion, while ways and means advances which was not provided for in the budget, the Central Bank has charged over a trillion naira as interest. That is why in the MTEF/FSP, you discover that revenue to debt service was very high.
“For January to April, we actually exceeded 100 percent of revenue. So, apart from revenue being very low, there is this issue of ways and means advances. So, by the end of December, Debt services will be higher than what was budgeted, largely because of ways and means advances.
“One thing to add is that interest rates are going up in the domestic market and even internationally, but we have provided for it in the 2023 projections, including interest of N1.2 trillion on ways and means advances. It was not featuring before, but we felt it is the right thing to do since it is a loan which you are paying separately.
“It is common knowledge that we are low on revenue. But what we do as a country is to make sure it is there in the budget and there is seamless process for it. So, in terms of debt servicing, provisions are made in the budget to service the loan and so far, we have not recorded any default.
“In the 2022 Appropriation act, you will see that there was new borrowing of N6.1 trillion. Domestic is N3.564 trillion and external is N2.569 trillion. For domestic borrowing, as of October 2022, we had raised N2.2 trillion, meaning that we have raised about 91 percent of the total domestic borrowing to support the government. That is what has helped in breaching the gap in revenue which underperformed significantly between January and August. On the outstanding ones, we are working on the Sukuk and the offer will open in the next two weeks and we will issue FGN bonds as well.
“We are hoping to raise the balance before the end of the year. Where the issue is external borrowing. What was provided for in the 2022 budget is N2.57 trillion. The reality is that is it was before, by now, we would have issued Euro bonds to raise the money. But from the fourth quarter of last year, the International Capital Market has not been opened to countries like Nigeria. In 2021, there was N6 billion to be raised, but we raised N4 billion out of that. This year, we raised N1.25 billion. That was the only day the International capital market was opened. Since January this year, countries with our rating, the international market are not looking for us because the invasion of Ukraine by Russia turned around things in the world significantly. So, inflation rates are high, interest rates are high and investors are saying there is a lot of uncertainty, there is threat of recession.
“So, what they have decided to do is to put their money in the G7 nations. Interest rates there have gone up significantly and monetary policy has raised interest rates across the world and foreign investors are happy to invest in those nations. Right now, they don’t know what will happen with us and we have not issued any Euro bonds this year because the market has not opened. So, right now we are looking at export credit, development finance institutions to raise money which are projects tied for the government.
“The International Capital Market is not closed only to Nigeria. Foreign investors are huge, but they have a limit to the amount of risk they can take. You have Fitch and others rating countries. The very strong countries are the ones that in triple-A and the USA used to be part of the triple-A and I think they have been brought down to double. It is not only Nigeria but the whole of Africa. For this year, it is only Nigeria and Egypt were issued a Euro bond. It is the same with some of the South American Countries because we have the same rating.
“The ratings give the investors the perception of how risky you are. Investors are now putting their money in securities issued by the US government, Japan, France and others because they know that those countries will pay. We were eve lucky to raise money in March.”
Earlier, the chairman of the House Committee, the Honorable Ahmed Safana, had raised concern about the rising debt profile of the country, which was around N3.3 trillion due to government borrowing.
Similarly, another committee member, the Honorable Emeka Azubogu, lamented frequent borrowings, while other committee members wanted information on the agency’s personnel costs and the number of its employees.
Hon. Steve Azaiki, for his part, encouraged the government to hire consultants to acquire access to cash from the $70 billion climate change funds, while another member, Hon. Promise Dike, requested all the information of assets sold, payments made, and outstanding debts owed by the agency under privatization.