INDEPENDENT

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Mon, 15 Oct 2007 02:35:00

Domestic Debt Hits N2.05tr – DMO Report

By Oluyinka Akintunde,Snr Correspondent, Abuja

The government’s domestic debt was N2.051 trillion on June 30, a rise of 9.9 percent over its level of N1.866 trillion in the first quarter of 2007, according to a report from the Debt Management Office (DMO).

Domestic debt, which was N898.2 billion in 2000, includes securitised and non-securitised debt of the Federal Government, comprising Nigerian Treasury Bills (NTBs), Treasury Bonds (TBs), Federal Government Bonds (FGBs), Federal Government Development Stocks (FGDS), contractor debts, and pensions arrears.

FGBs accounted for 40.4 percent (N925.65 billion) of domestic debt, compared to its figure of N753.94 billion in March 2007.

The report, obtained at the weekend in Abuja, gave details of domestic debt in form of instruments, such as NTBs (N716.93 billion), TBs (N407.93 billion), and FGDS (N720 million).

NTBs amounted to N698.11 billion in March, TBs (N413.59 billion), and FGDS (N720 million).

A source in the DMO confirmed that the government’s rising domestic debt reflects the cumulative effects of financing budget deficits in the past, including public sector capital expenditure.

He explained that the increases between 2005 and 2007 were accounted for by different sets of factors, reflecting a shift towards market-based funding of government deficits, as well as productive uses of domestic borrowing.

“For example,” the source added, “in 2005 domestic debt stock increased by N155.6 billion, bringing the total to N1.526 trillion. This increase was accounted for by the issuance of second Federal Government of Nigeria Bonds to fund capital expenditure of N108.3 billion, and 2005 budget deficit of N70 billion.

“But it should be noted also that in the same period, there was a decline of N16 billion in NTBs, N0.27 billion in Development Stocks and N5 billion in Treasury Bonds due to maturity and redemption of these instruments.

“In 2006, domestic debt increased to N1.753 trillion mainly due to the issuance of N45 billion under the third FGN Bonds to finance budget deficit; N15 billion as Agency Bonds to support three development finance institutions, namely: the Bank of Industry, Federal Mortgage Bank, as well as the Nigerian Agricultural and Rural Development Bank; and N75 billion and N91.6 billion as Special Bonds to settle the lingering pension arrears and local contractors’ debts.”

It was learnt that the rise in domestic debt in 2007 was as a result of the part funding of the deficit for the year; the government’s support for the TINAPA project, which the Cross River State Government is repaying; and new NTBs issued by the Central Bank of Nigeria (CBN) for Open Market Operations (OMO), among others.

“These are clearly productive, necessary and desirable objectives which are consistent with the generation of sustainable growth, shared prosperity and poverty reduction.”

About N446 billion FGBs are to be floated in 2007 to finance this year’s budget deficit of N200 billion, refinance N120 billion 365-day NTBs into FGBs of longer maturities, refinance N61 billion maturing second FGB 2007, and fund N63 billion five-year special government bond for the securitisation of local contractors’ debt.

Prior to the restructuring of domestic debt by the DMO, a large amount of the debt was concentrated in short-dated instruments, held in 91-day NTBs, which accounted for about 63 percent of domestic debt by December 2002. But that declined to 37 percent in March 2007.

The DMO has restructured about 42 percent of domestic debt from predominantly short-term instruments of less than one year to long-term ones, extending from three to 10 years.