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FG’s debt burden surges as DMO offers N250bn Sukuk for subscription

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NIGERIA’S debt burden is rising rapidly even as the Debt Management Office (DMO) offers N250 billion Sovereign Sukuk instrument for subscription at N1,000 per unit.

The DMO said on its official website Thursday that the Sovereign Sukuk was for a tenor of 10 years.

“This will be the fourth to be issued by DMO since its first Sukuk issuance in September 2017, and is for a Tenor of ten (10) years at a Rental Income of 12.80 per cent per annum which will be paid half-yearly.The offer closes December 22, 2021.”

Many industry stakeholders are worried that Sukuk, which is another borrowing instrument, is spiralling Nigeria’s debt which hit N38 trillion in September 2021, according to the Debt Management Office.

Nigeria’s debt rose from N35.5 trillion in March 2021 to N38 trillion in September.

The ICIR reports that Sukuk specifically raises debt for infrastructural development amid dwindling revenue resources.

It would be noted that Sukuk is the Arabic name for financial certificates, also commonly referred to as ‘Sharia complaint’ bonds.

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According to the DMO, the proceeds of the Sukuk would be used to finance critical road projects across the country.

Giving historical perspective on Sukkuk, DMO said: ”So far, through the issuance of Sovereign Sukuk in 2017, 2018 and 2020, the DMO has raised a total of sum of ₦362.57 billion which has been deployed to the rehabilitation and construction of critical economic road projects across the country.

“The impact of the Sovereign Sukuk on road infrastructure in terms of job creation, travel time, safety and movement of goods have made the Sukuk a beneficial financial instrument for financing economic growth and development.”

The office further called on institutions, individuals, associations and cooperative societies to invest in the Sovereign Sukuk to support the DMO towards raising project-tied funds and promoting financial inclusion.

Meanwhile, economic analysts are making case for proper debt restructuring that enables Nigeria repay its loans without burdening the economy and future generation.

The Federal Government spent N74 out of every N100 earned servicing debt between January and August 2021, according to fresh data provided by FInance Minister Zainab Ahmed.

Ahmed said the Federal government’s debt servicing cost came to N2.89 trillion in the first eight months of the year as against revenues of N3.9 trillion, implying that the government spent 74 per cent of its revenues in the period repaying creditors.

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“The rising debt profile of government raises serious sustainability concerns. Although government tends to argue that the conditions was not a debt problem, but a revenue challenge.

“But the truth is that debt becomes a problem if the revenue base is not strong enough to service it sustainably. It invariably becomes a debt problem,” Economist and  Chief Executive Officer Centre for the Promotion of Private Enterprise Muda Yusuf told The ICIR.

He stressed that political will was needed to cut expenditure and undertake reforms that could scale down the size of government, reduce governance cost and ease the fiscal burden on government.

“It is important to ensure that the debt is used strictly to fund capital projects that would strengthen the productive capacity of the economy.”

This is position of the Fiscal Responsibility Act, he noted.

Additionally, he noted that emphasis should be placed on concessionary financing as opposed to commercial debts which were typically very costly.

Economist at the Centre for African Economies Mma Ekeruche told The ICIR that Nigeria’s public debt was relatively sustainable at 25 per cent of GDP.

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She noted, however, that debt service payments were high and the country’s ability to attract external private financial flows was hurt by macroeconomic imbalances and policy uncertainty.

 

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