The US$30bn question (or a no-brainer)

The FGN is looking to borrow US$30bn externally over the 2016-18 period. This has brought some criticism on the grounds that Nigeria could fall into a second debt trap. We note that the external debt stock/GDP ratio for Ghana is now worse than before the application of relief by bilateral, commercial and multilateral creditors. However, we would argue that Nigeria’s infrastructural deficit is preventing a sustainable recovery and is so large as to require large-scale government borrowing.
The FGN has to borrow, therefore, in our view and we all have to hope for a marked improvement in the management of the loan proceeds.

We welcome the fact that the borrowing is to be external, and concessional other than the Eurobond programme of US$4.5bn. This 15% share of the total is similar to the 13/87 split between market and concessional obligations in the FGN’s external debt burden of US$11.3bn at end-June.

This clearly reduces the debt servicing costs. Data from the Debt Management Office (DMO) show public external and domestic debt service (principal and interest combined) in 2015 at US$331m and US$5.17bn respectively. Servicing the outstanding US$1.5bn Eurobonds amounted to US$91m.

Another DMO series, expressed in naira, shows the steep rise in domestic debt service from N537bn in 2011 to N1.02trn in 2015.

Against this background it has set a medium-term target of 60/40 for the domestic/external split in the stock of FGN debt. As at June, the split was 77/23.

The ratios for the stock remain healthy. For the FGN, the figure at June was 15% of GDP (domestic including contingent liabilities and external). Its latest plan would add a further 7% on our exchange-rate assumptions.

We are not sure whether the US$30bn package would cover the full external requirement over the three years. It includes just US$3.5bn in budget deficit financing, and we ask how the expected deficits next year and in 2018 are to be funded.

On Tuesday the Senate rejected the request from the presidency for the approval of US$30bn in external borrowing. It appears that the rejection was based on technical grounds. The local media reported that the request was not backed by the relevant supporting documentation. This was the equivalent of failing to send the promised attachment with an email, albeit with rather greater consequences.

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