A stellar release on external debt

The latest data for the FGN’s external debt obligations are again comforting. Total obligations at end-June amounted to US$15.05bn, equivalent to 3.8% of 2016 GDP. The increase over Q2 amounted to US$1.2bn, consisting of World Bank disbursements of US$800m, diaspora bond sales of US$300m and an additional US$100m from the Exim Bank of China. H2 2017 should see a further increase in exposure, given the FGN’s intention to return to the Eurobond market and, perhaps, the release of US$400m from the African Development Bank for deficit financing.

External debt service in Q2 2017 was US$60m. If we take the interest and fee payments of US$30m, we arrive at an annualised average interest rate of just 0.9%. This compares with 2.6% in Q1 but we note that there were no Eurobond coupon payments due in the latest quarter under review.

The optimal blend of the FGN’s domestic/external debt obligations is 60/40 according to the DMO’s medium-term strategy. The ratio for the FGN at end-June was 72/28. The improvement of four percentage points in the quarter (ie movement towards the optimal blend) came from the very small increase in the FGN’s domestic debt.

The FGN’s fiscal strategy has the deficit largely covered by external financing with effect from next year. The possibility of further exchange-rate adjustments also suggests a step towards the optimal blend.

Nearer term, the FGN has launched a debt restructuring initiative which would also favour the blend (Good Morning Nigeria, 15 August 2017). Subject to the go-ahead from the National Assembly, it would refinance domestic into external obligations up to a ceiling of US$3bn.

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