Persisting forex crisis worsens Nigeria's debt burden
Patience Oniha, DG DMO


The persistent scarcity of foreign exchange has worsened Nigeria’s huge debt burden, with the nation’s debt ballooning to N87.38trillion despite the huge sums of money voted monthly to servicing it, Business Hallmark findings can reveal.

Since the coming into power of the new administration on May 29, 2023, Nigeria’s economy has reacted positively to investors renewed interest.

For instance, the economy recorded 17.5 per cent foreign exchange inflows in the first quarter (1Q) of 2023, compared to14.62 percent in the fourth quarter (Q4) of 2022.

However, the inflow has failed to lift the nation’s external reserves. According to a report by the CBN, Nigeria’s foreign exchange reserves declined by 4.01 per cent ($1.47billion) to $35.14 billion in Q1, 2023, from $36.61 billion at the end of December 2022.

According to Dr. Yemi Kale, the former statistician-general of the federation, 17.5 per cent is not the net flows

“If FX inflows went up by 17.5 per cent, but reserves declined together with a devaluation, it shows FX demand also increased higher than the increase in the supply of 17.5 per cent.

“What matters is inflows. For it to reflect stability, net inflows have to be positive and high, which means inflows must be higher than outflows,” said Kale, who is currently a Partner & Chief Economist at KPMG Nigeria,

The country has been facing economic challenges due to several factors, including forex scarcity and high levels of government debt, which have led to a stunted GDP growth rate, slowing export growth rate and high rate of poverty.

The Debt Management Office (DMO) had on Friday, September 15, 2023, announced that Nigeria’s total public debt hit N87.38trillion at the end of June 2023.

According to the debt management office, the figure represented an increase of N37.53trillion (75.29%), compared to N49.85trillion recorded at the end of Q1 2023.

Apart from the N22.71trillion Ways and Means Advances of the Central Bank of Nigeria (CBN) to the Federal Government, which significantly increased the nation’s debt burden within the spate of three months, other additions to the debt stock include new borrowings from both local and external sources by the Federal Government and state governments such as Treasury Bills and FGN Bonds.

At the final count, domestic debt rose by 79.18 per cent from N30.21trillion, while external debt rose by 69.28 per cent from N19.64trillion in Q1 2023.

Meanwhile, while the nation’s debts have continued to rise, statutory debt repayments by the sub-nationals (Federal Government, States and Local Government Councils), BH findings revealed, have recorded significant drop, especially in the first half of 2023, owing to the forex crisis.

According to data obtained from the Debt Management Office (DMO) at the weekend, the Federal Government used N2.34trillion to service its debts in the first six months of 2023.

Further analysis of the report indicates that the country spent N874.13billion on domestic debt servicing and $801.36million (N617.35bn) on external debt servicing, totalling N1.24trillion in the first quarter of 2023 (January to March).

In the second quarter of 2023, Nigeria’s debt service spending was N565.88billion on domestic debt servicing and $368.26million (N283.7billion) on external debt servicing, totalling N894.58billion between April and June 2023.

Compared to N1.24trillion spent on debt servicing in the first quarter of the year, the sum of N849.58billion spent on debt servicing in the second quarter of 2023 indicates a reduction by 43.04 per cent in the second quarter.

Checks also showed that unlike in the first quarter, where Nigeria deployed $131.13million to servicing loans from the Exim Bank of China, no provision was made for Q1, 2023, with records showing zero payment on Chinese loans in the period under review. The figure for the second quarter is yet to be released.

Despite the noticeable reduction in the amount allocated for debt servicing in the second quarter of the year, the Federal Government made more income from exchange rate differentials as it exchanged $1 for N770.38 using the unified FX window, as against N440 it officially sold at the end of May.

A developmental economist, who spoke with our correspondent on the forex crisis, Dr. Peju Beckley, warned that the revenue and FX shocks may linger till the end of the year when fiscal and monetary policies introduced by the new administration start bringing results.

“In spite of government’s spirited efforts to address the challenge, result will not come overnight. Based on available records, oil and gas alone accounts for 40 percent of the Nigeria’s GDP, 70 percent of budget revenues, and 95 percent of foreign exchange earnings.

“So, it is not surprising that we are in this mess. Because anytime the oil and gas sector passes through turbulence, the nation no doubt will be negatively affected.

“Meanwhile, kudos must be given to the new administration for some of the policies it had introduced. For instance, the two major drain on the nation’s income and FX savings, fuel and forex subsidies, have been removed, at least to a very large extent.

“Another major problem, which is crude oil theft, is being aggressively tackled by the government. Apart from equipping the military to be able to stand up to the oil cartels, the decision to involve locals like Tompolo and Asari Dokubo in the fight against oil theft is commendable.

“Already, you can see that our daily oil production has gone up to about 1.2 million barrels per day, excluding condensates estimated to be over 400,000 barrels per day. By the time we add them together, Nigeria should currently be pumping around 1.6million barrels per day.

“If the trend continues, we should be meeting our OPEC quota by the end of the year or early 2024, meaning more income and foreign exchange to the country.

“But all these interventions will take time. Before then, we’ll continue to grapple with the forex and revenue challenges we are presently facing”, the economist warned.

BH findings corroborated Dr. Beckley’s arguments, as checks revealed that the nation’s crude oil output crashed by about 470,000 barrels per day at the end of August 2023.

The Federal Government had budgeted N21.8 trillion for the current 2023 calendar year, using a benchmark of 1.69 million barrels of oil per day at $75 per barrel and at the exchange rate of N437.57/1$.

However, the nation suffered a shortfall of 470,000 barrels per day (29 per cent fall) in August 2023, thereby putting the 2023 budget estimates in jeopardy.

A quick add up of the numbers showed that using the average market price of $92 per barrel in August, the nation lost $43.2 million daily (N32 billion), using the I&E exchange rate of N742.10/1$.

Speaking on the development, the Director-General, Nigeria Employers’ Consultative Association (NECA), Adewale-Smatt Oyerinde, traced Nigeria’s present economic predicament to her total dependence on the petroleum sector.

“It is instructive to note that we had urged successive governments to diversify the sources of foreign exchange, to deal with fluctuations associated with the global oil market.

“This remains one of the ways to address the continuous flip in crude oil production and price.

“Government should also step up protection of the nation’s crude oil pipelines, while dealing decisively with oil thieves.

“A reduction in oil production, whether because of oil theft or reduction in OPEC quota is a source of concern to Organized Private Sector of Nigeria.

“With the budget based on 1.69mbd crude production, this reduction has the potential to reduce government’s ability to meet developmental objectives and also increase budget deficit at the end of the year.

“It is hoped that a reduction in government’s revenue due to drop in oil production, will not lead to the temptation to increase taxes or introduce new ones. This will result in further burdening of organized businesses”, the NECA boss warned.

In his own submission, the President, Association of Capital Market Academics of Nigeria (ACMAN), Prof. Uche Uwaleke, advised the government to confront crude oil theft by deploying conventional security forces alongside local communities in oil-producing areas.

“It is a worrisome development. If crude oil production was 1.2mbpd against an OPEC quota of 1.74mbpd, it means that volume deficit is in excess of 500,000 barrels per day.

“This translates to 15 million barrels per month. At a conservative oil price of 85 dollars per barrel (current price is over 90 dollars), it means Nigeria lost over $1.2 billion in one month alone (or nearly N1 trillion @ N765 exchange rate).

“The lost $1.2 billion monthly inflow could have gone a long way to boost external reserves and improve liquidity in the FX market”, Uwaleke noted.

In his own reaction, the CEO of Wyoming Capital and Partners, Tajudeen Olayinka, blamed the consistent sabotage on oil installation on the nation’s present financial state, warning that it will further worsen dollar liquidity challenge in FX market if not addressed.

“The already identified causes are oil theft and production challenges by some oil companies in the Niger Delta.

“It will definitely affect dollar component of the Federal Government budget and further worsen dollar liquidity challenge in the foreign exchange market.

‘’The naira component of the budget may not be seriously affected because of substantial removal of fuel subsidy and naira exchange rate depreciation in the past three months.

‘’Government is already making efforts in the direction of curtailing oil theft but needs to encourage oil companies to improve production capacities. Nigeria needs all the oil she can bring out from underneath the ground at this difficult time”, Olayinka noted.

The DMO, it would be recalled, had in its 2022 Debt Sustainability Analysis Report, warned the Federal Government against further borrowings, arguing that its projected revenue of N10trillion for 2023 could not support fresh borrowings.

The government’s debt service-to-revenue ratio of 73.5 per cent for 2023, argued the DMO, was high and a threat to debt sustainability.

“Government’s current revenue profile can not support higher levels of borrowing”, the debt office warned

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