Wednesday, June 17,
2020 / 09:59 AM / by FBNQuest Research / Header Image
Credit: South China Morning Post
indebtedness of African governments has, not surprisingly, been rising since
the application of official debt relief in the late 1990s and early 2000s. In
isolated cases such as Mozambique, Zambia and Ghana, the debt burden (as a
percentage of GDP) is now higher than it was pre-relief. Of course, there are
more than 50 separate stories within Africa and, as we have noticed over the
years, the tendency to lump them all together becomes irresistible for many
analysts and lobbying groups at times of downturn. Our interest is to set out
Because the virus and governments’ response to it has brought sharp
falls in output and revenue collection, there is naturally an increased focus
on debt dynamics. The Nigeria debt story has several weaknesses, most of all
the modest collection of taxes, but is better than most in our view.
To start with the weakest link, the Jubilee Debt Campaign has calculated
that the external debt service/total revenue ratio has worsened by a factor of
three in the past decade to an African average of 13%.
Data from the Budget Office of the Federation for 9M 2019 gives a ratio
of 11% for the FGN. However, if we recalculate the ratio for total debt
service, we arrive at an alarming figure of 59%. The position will almost
certainly have deteriorated this year because revenue is being squeezed.
Gross federally collected revenue amounted to 7.5% of GDP in 2018 and
7.1% last year. For an oil producer and emerging economy on Nigeria’s scale,
the proportion should be closer to 20%. The collection agencies have challenges
with both coverage and compliance. The turnaround will be slow.
The G20’s offer of the deferment of all bilateral debt
service due by end-2020 might seem a good starting point. However, the total
bill paid to these creditors by the FGN in 2019 was less than US$180m.
Accepting the offer, as twelve other governments have done to date, could bring
private creditors into the process on the basis of comparable treatment. This,
in turn, could well have implications for sovereign ratings and access to the
The FGN may have ruled out returning to this market this year. That
said, several EMs have tapped the market in recent weeks and come away with
good pricing. Egypt raised US$5bn in May and could have raised US$15bn. Let’s
not forget that the FGN has a US$500m Eurobond maturing in January.
Another major positive in the Nigeria debt story is the strength of
domestic institutional investors. This is proving invaluable as the Debt
Management Office has a target to raise N1.60trn (US$4.1bn) for 2020 budget
financing. The CBN helped to push down borrowing costs and boost demand for FGN
paper by shutting the PFAs out of the trade in its own OMO bills in October.
- African Countries Face Wall of Sovereign Debt Repayments
- Pan African Local Currency Government Debt- African Domestic Bond
- South African bank to exercise right to convert ETI’s debt to shares
- G-20 Debt Freeze Won’t Fix Eligible Sovereigns’ Liquidity Pressures
or Medium-term Debt Challenges
- Value of Downgraded Sovereign Debt Not as High as Previous Crises
- Senate Gives Approval as DMO Switches Out N850bn External Borrowing
Plans For Local Debt
- Suspension of Debt Payments to Multilateral Development Banks a Risk
- Debt Relief Needed to Preserve 30 Years of Progress
- Decline in the FGN’s External Debt Service
- Nigeria’s Total Public Debt Stood At N27.40trn in Q4 2019 – NBS