FG’s debt burden rises as DMO offers 250 billion naira sukuk for underwriting

NIGERIA’s debt burden is rising rapidly even as the Debt Management Office (DMO) offers a sovereign instrument of 250 billion naira for subscription at 1000 naira per unit.

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

“This will be the fourth to be issued by DMO since its first Sukuk issue in September 2017, and is for a ten (10) year term at a rental income of 12.80 percent per annum which will be paid semi-annually. offer ends December 22, 2021.

Many in the industry fear that Sukuk, which is another borrowing instrument, could skyrocket Nigeria’s debt, which reached 38 trillion naira in September 2021, according to the Debt Management Bureau.

Nigeria’s debt fell from 35.5 trillion naira in March 2021 to 38 trillion naira in September.

ICIR reports that Sukuk is borrowing specifically for infrastructure development as financial resources dwindle.

It should be noted that Sukuk is the Arabic name for financial certificates, also commonly referred to as “sharia complaint” obligations.

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

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

“The impact of Sovereign Sukuk on road infrastructure in terms of job creation, travel time, safety and movement of goods has made 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 Sovereign Sukuk to support DMO in raising funds related to projects and promoting financial inclusion.

Meanwhile, economic analysts are arguing for proper debt restructuring that allows Nigeria to repay its loans without weighing down the economy and future generations.

The federal government spent N74 out of every N100 earned on debt service between January and August 2021, according to new data provided by Finance Minister Zainab Ahmed.

Ahmed said that the cost of servicing the federal government’s debt was 2.8 trillion naira in the first eight months of the year against revenues of 3.9 trillion naira, implying that the government spent 74% of its income during the period to pay off creditors.

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“The government’s growing debt profile raises serious sustainability concerns. Although the government tends to argue that the terms were not a debt issue, but an income issue.

“But the truth is, debt becomes a problem if the income base is not strong enough to serve it on a sustainable basis. It invariably becomes a debt problem, ”economist and director general of the Center for the Promotion of Private Enterprise Muda Yusuf told ICIR.

He stressed that political will is needed to cut spending and undertake reforms that could reduce the size of government, reduce governance costs and ease the government’s tax burden.

“It is important to ensure that debt is used strictly to finance investment projects that would strengthen the productive capacity of the economy. “

This is the position of the fiscal responsibility law, he noted.

In addition, he noted that the focus should be on concessional financing as opposed to commercial debt which is usually very expensive.

Center for African Economies economist Mma Ekerruche told ICIR that Nigeria’s public debt is relatively sustainable at 25 percent of GDP.

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

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