Nigeria’s External Reserves and Geometric Rising Debts


Summarizing performances of the Buhari administration on the economy, it has been sort of topsy-turvy. The economy within the life of this administration officially entered into and also got out of recession. The current celebration is the increase in the nation’s external reserve. As much as these are commendable, the big question remains the worrying increase in the nation’s debt profile- external and internal. Growing the external reserve is indeed plausible but when measured from the point of debts, rising at a higher rate than the external reserves, where does this lead the economy and the nation in years and decades ahead? Kris Obiaje here expresses opinions of some Economic Analysts. Excerpts:


The Nigerian economy is out of recession!  The National Bureau of Statistics, NBS has announced back in September of 2017.

The same quarter, the Federal government presented a foreign loan request of US$5.5 billion to the National Assembly, which it said was for more unearned capital to be made available for government spending. NBS has stated that the country’s total domestic and foreign debt stocks as at June, 2017 was stacked high at about US$15.1 billion and N14.1 trillion respectively, when Buhari made that request.

Between June and December of 2017, Nigeria’s external debt has risen to $18.91 billion (N5.787 trillion), while domestic debt rose to N15.937 trillion, bringing the total debt stock of the country to N21.725 trillion ($70.92 billion). As further enunciated by Oniha, the figures released showed that domestic debt for the federal government was N12.589 trillion, while the domestic debt of states and FCT was N3.348 trillion. This was according to data released in the passing week by the Debt Management Office, DMO.

Notwithstanding huge debts, Nigeria’s External Reserves seem to be steadily heading towards the $50 billion mark, berthing at $46 billion at the close of business on Friday, March 9, 2018.

Figures from the Central Bank of Nigeria, CBN the previous weekend indicates that the reserves grew by about $3.2 billion between February and March 2018. The reserves at the beginning of 2018 stood at $39.3 billion, then rose to $42.8 in February before hitting the new high of $46 billion.

Obviously in relations to the external debts, the Eurobond raised by the Federal government in December, 2017 has buoyed the debt baggage, raising it to its current status. A phenomenon the authority said have otherwise buoyed Nigeria’s external reserves to 55 months high of $46 billion following the conclusion of federal government’s $2.5 billion Eurobond by February ending. According to the Ministry of Finance, the $2.5 billion Eurobond, which attracted buying interest of $11.5 billion, comprises a $1.25 billion 12-year series and a $1.25 billion 20-year series. The 12-year series comes with interest at a rate of 7.143%, while the 20-year series will bear interest at a rate of 7.696%.

Though the purpose of the Eurobond issuance is to refinance domestic debts, proceeds of the bond will, among other things, accelerate accretion to the nation’s external reserves, the federal government submitted. Analysts are of the view that issuance of the bond would be used to refinance relatively expensive short term domestic borrowings as the authority plans to achieve an optimal mix of domestic and foreign debt and reduce overall debt servicing cost. “The impact of the debt refinancing, coupled with declining inflation rate and stability in foreign exchange rate, is anticipated to continue to anchor yield expectation lower in the near term and reduce crowding out of private sector borrowers.” they said.

Back to the debt baggage; at N21.725 trillion, the country’s total debt stock rose to a new high, from N17.36 trillion ($56.73 billion) at the end of 2016. Since Buhari came on board in 2015, Nigeria’s debt profile has continued to balloon. A review of the total foreign debt profile of the Federal and the 36 states governments and the FCT also shows a continuous rise: from $10.718 billion in 2015, to $11.406 billion in 2016 and $15.047 billion in June of 2017.

In giving the report on the nation’s current debt profile, DMO said the total debt as a percentage of GDP also rose to 18.2% based on International Monetary Fund, IMF, estimates, which put Nigeria’s nominal GDP at $394.8 billion (N122.4 trillion) in 2017.

The DMO Director-General, Ms Patience Oniha, who provided the data on Nigeria’s debt at a press briefing in Abuja on the nation’s Debt Management Strategy, DMS; said a detailed analysis of the debt stock depicted that the federal government’s domestic debt at the end of 2017 stood at N12.589 trillion, while the states and the Federal Capital Territory (FCT) accounted for N3.348 trillion of domestic debt.


Reacting to the huge difference in the internal debts of the nation within the short period, Dr. Ayoola John of Obafemi Awolowo University, Ile-Ife, said, “when you look at the internal debt, you will see that the chunk of that borrowing or liabilities would have gone to cater for overhead and not capital projects, especially for political officers holders. Tell me? How many capital projects can we sincerely point to that this government has successfully executed? Rather, what we hear is Senators taking home N13 million monthly allowance not taking into account salaries and other sundry pays, who knows what the executive are taking away from the national coffers?

“Like I always tell you, until this country devices a means to cut down on government recurrent expenditure, we might just wake up one day and see that there is nothing locally to be borrowed anymore and Aso Rock have been put up for sale so as to pay the jumbo allowances of politicians.”

The latest DMO data came just as the National Bureau of Statistics, NBS, who gave Nigerians in June, 2017 the debt figures – saying in its inflation report for February, 2018  that the inflation rate fell by 0.8% from 15.13% in January to 14.33% last month. According to the DMO, the total public debt represented 18.20% of Nigeria’s GDP in 2017.

In a form of justification for government continuous borrowing, Oniha obdurately claimed that this figure shows Nigeria’s debt continues to be sustainable and is well within the threshold of 56% for countries in Nigeria’s peer group.

However, the Nigerian senate has contrary opinion. Senators on Thursday of the passing week expressed concern over what they termed, “the ever increasing debt profile of the country”.

While debating on the 2018 appropriation bill, senators chided the obscurity with which information about the true picture of nation’s debt baggage is shrouded. Senator Solomon Adeola (Lagos West) asked the Senate committee on Local and Foreign Debts to look critically to determine Nigeria’s actual debt profile, Senator Rabiu Kwankawso (Kano Central) said that the country must be careful not to fall into unnecessary debt trap again. While Senator Sunny Ogbuoji (Ebonyi South) said that the debt profile of the country had steadily been on the rise.

Senator Adeola said, “I call on the committee on Local and Foreign Debts to critically look at the countries debt profile. The committee should determine and tell Nigerians the true profile of the country’s debts. How much of the debt service are we actually fulfilling. It is important that we know to guide us in our actions.”

As critics lampoon the authorities, both at state and federal level for their insatiable thirst for borrowing, the DMO DG disclosed that the recent borrowings were, largely “for financing capital expenditure and stimulating the economy.” She pointed out that funds injected through the borrowings strongly supported the implementation of the federal government’s budget which helped the country to exit the recession in 2017.

Oniha was not about to be caged in as she explained that the new Debt Management Strategy had culminated in restructuring the portfolio with attendant reduction of debt servicing costs, lowering interests rates in the domestic market and an improved availability of credit facilities to the private sector.

In her analysis, the $3 billion Eurobond issue used in refinancing maturing domestic debt has resulted in an annual savings of about N81.66 billion in debt servicing, as the Eurobond was secured at about 7% interest, compared to about 15 or 16% interest on domestic borrowings.

Oniha concluded that the federal government had to borrow because of the decline in revenues, but opined that the most important consideration was the fact that the proceeds were being prudently applied to bridge the infrastructure gap. The rate of increase of debt service, she stated, would reduce going forward, given the federal government’s attention to raising revenue through the Voluntary Assets and Income Declaration Scheme, VAIDS, as well as targeted efforts to increase local production of some of the goods responsible for high foreign exchange demand.

$46 billion Increased External Reserve, the new rendition

Despite the worrying state of the national debt profile, and critics incertitude of government’s handling of the economy; the authority in the passing week also, have found escape from citizens’ scathing criticism of the way Buhari has handled his much hyped security policy, due in part to the incessant killings by herders across the nation – the carrot being offered citizens is the new-found increase in the external reserves.

The CBN Spokesman, Isaac Okoroafor, who disclosed the ‘good news’ in the passing week, said in a statement that the reserves grew by about $3.2 billion between February and March 2018.

It should be noted that Nigeria’s external reserves has increased significantly in the last two decades; beginning from $3.4 billion in 1996, to an all-time high of $62.1 billion in 2008. By August of 2014, and as the oil price downturn gained ground – Nigeria’s gross reserves level dropped to $39.6 billion. By October of 2016, lower oil returns, CBN increased market interventions, and capital flight all contributed to the sharp decline in the reserves to a decade low of $23.9 billion.

In the last 14 months, Nigeria’s foreign reserve has lingered between $30-30.9 billion in the first half of 2017, and crossed the $31billion threshold on August 29th, to settle at $32.7billion on October 3rd of the same year. The increment was majorly due to the rise in oil revenues.

On the latest rise, Okoroafor attributed it to CBN’s effort at vigorously discouraging unnecessary importation and reducing the nation’s import bill, inflow from oil and non-oil exports. He also credited the accretion to the huge inflows through the investors and exporters window of the foreign exchange market, which CBN said had attracted over $33 billion since April 2017, when it was created.

According to him, the bank’s interventions in the foreign exchange window had also helped to moderate the pressure on the foreign exchange reserves by sustaining liquidity in the market and boosting production and trade.

This is in addition to the CBN policy restricting access to foreign exchange from Nigeria’s foreign exchange market to importers of some 41 items which had made huge impact on the status of Nigeria’s reserves.

In the light of the development, the CBN Governor, Mr Godwin Emefiele could not hide his elation when he later projected that the reserves might hit $60 billion in 2019, riding on the ongoing the trend.

Mr. Emefiele said foreign exchange buffer of the CBN has continued to increase recently over steady increase in global oil prices and federal government Eurobond borrowing, among others. In his forecast, the increases in the price and shipment of oil, which is Nigeria’s biggest foreign- currency earner, and improved investor confidence meant the CBN could beat $60 billion threshold over the next 12 to 18 months. He said, “Things are looking up. No one ever thought the price of crude would hit $70 in such a short period of time.”

Analysts are of the opinion that Nigeria have relied too long on crude oil as a major source of income with devastating, if not self-failure inflicting detriment to other viable, profitable means of fund. They posited that in order to grow the economy and even increase the all-craving external reserves; attention should be paid to growing the real sector – especially the small-scale and manufacturing sub-sector.

Adedoyin Kuseyi, an Econmist queried: who told Emefiele oil would continue to be the most cherished source of energy? Nations are planning, as a matter of fact moving away from crude oil, but here we are, as lazy as we are at thinking. Crude oil prices according to reports will average $62 a barrel in 2018 and in 2019. That’s the same as last month’s Short-Term Energy Outlook by the U.S. Energy Information Administration. But what happens in 5 -10 years? What happens to the external reserves when oil may no longer be selling? All the debts being piled up, how do we offset them?

“There is goldmine in the small industries. This is how China and a few Far East nations have moved away and can now flex muscle with the West. But in Africa and particularly in Nigeria, what have we done to encourage that sector?

Speaking on the celebrative mood the presidency have assumed on the foreign reserve accretion, Dr. Jeremiah Anniah, a Lagos based financial consultant and hedge fund manager said, “if the country have some much in reserve, does it then say the economy is now buoyant to the extent we keep floating more eurobond in order to grow our reserves?”He said in looking at the impact of the huge external reserves in relations to the Nigerian economy, certain salient ingredients needs to be analyzed.

He said, ‘when measuring the abundance of a nation’s foreign reserves, it is a universal rule that four key considerations must be highlighted’.  We look at import cover, broad money, current account deficit and the stress test. Experts readily agreed that among the four, the Stress Test is designated as the most paramount. This is on account that it determines the nation’s susceptibility to possible crisis. Stress Test simulation technique involves evaluating if the external reserves level could provide an adequate buffer in the event of an external or domestic crisis. This method is similar to the banking industry’s stress test. In this instance, a worst case scenario for Nigeria would be an oil price below $40, and/or the resurgence in disruptions, push production below 1.4mbpd.”

A keen observation of the Nigerian miliue, he said, show that of the four considerations; Nigeria have failed the stress test performance, while passing in the first three. It therefore, holds that while the accretion is encouraging, further growth is still needed if the country is to build shock absorber against external factors such as another crude oil price shock.”

What are the impact of External Reserves?

Chatting online with this newspaper, we asked a financial forensic expert, Mr. Adams Ogar, an Enugu-based accountant, what the impact are of a nation such as Nigeria having a robust External reserves.

He said, “External reserves are assets kept in hard currency by a country’s monetary authority. The foreign currency is viewed as a stable safe haven for capital. More than 60% of all external reserves are held in US dollars, the world’s most traded currency actually. Robust external reserves are tools for monetary policy. The CBN could exert some control over exchange rates. If it desires to make the nation’s currency cheaper, to promote international trade, or to even restrict the supply of forex.

“In addition, the country could also use external reserves to buffer against external shock. An external shock is any factor that could impinge on an aspects of the domestic economy. These could range from global economic downturns, financial crisis in major trading partners, natural disasters, or commodity price falls. In the event of any of these, external reserves provide an interim cushion, by providing back-up funds; it can support a quick recovery or adjustment. The more robust the external reserves, the more resilient a country is to external shocks.”

He further said in measuring credit worthiness of a country, investors sometimes consider its external reserves. Bumper reserves suggest that, if the unforeseen sets in, the country can use part of its reserves to pay its debts and liabilities. Therefore, the higher the reserves level, the lower the risk of a repayment default.


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