BusinessDay
NigeriaDecides2023

Nigeria inches towards IMF bailout on mounting debt

Nigeria’s worsening financial crisis means it is inching closer towards opening talks with the International Monetary Fund (IMF) to pave the way for the rescheduling of the country’s huge foreign debt and avert a calamitous default, according to leading economists closely following the unravelling of Africa’s biggest economy.

Nigeria is already spending more money on just debt servicing, according to Finance Minister Zainab Ahmed, and the country is finding it very challenging to fund its massive petrol imports on the back of collapsing oil exports, BusinessDay has learnt.

In March this year, Nigeria issued a $2.2 billion Eurobond to enable the Nigerian National Petroleum Company Limited (NNPC) to pay for the importation of petrol, which the country must subsidise with N18.5 billion daily, but analysts say the country is increasingly finding it difficult to find foreign exchange to finance fuel imports.

Nigeria’s oil production has fallen to 1.2 million barrels per day (bpd), with almost one million bpd of this coming from deep-water oil fields governed by Production Sharing Contracts. This means that the government’s take cannot fund the importation of petrol, estimated by NNPC at 60 million litres per day.

Bismarck Rewane, a frontline economist and member of the government’s economic advisory council, told BusinessDay that seeking an IMF cover is a sure bet.

“There is the old saying that the path to Paris is via London and Washington. To get debt forbearance from the Paris Club, a country must first get Washington institutions to accept your plan is viable. That’s the way it is for all nations like Nigeria facing severe fiscal imbalance,” he said.

Read also: Nigeria moving towards high debt distress risk – Rewane

“The rescheduling of debt and all maturing obligations is a necessary path towards economic stability and growth for Nigeria,” Rewane added.

One analyst said: “If we are to be honest with the people, the government should now be contemplating approaching the IMF to securitise the debt obligations that are falling due. The longer the government waits and hides in denial, the worse the situation will be for Nigeria and its people.”

There is growing consensus among investors and economists that Nigeria’s situation is getting out of hand. One concerned investor asked: “For how long will the government in Nigeria continue to hide under the façade of ‘no naira devaluation, no removal of petrol subsidy’, and for how long will Nigeria continue to tell airlines, ‘we cannot pay you.’?”

“Emirates has fired the first salvo by pulling out of the Nigerian route. Be sure other foreign airlines will follow suit. It is just a matter of time. As this happens, Nigeria’s integrity is being messed up,” he said.

Nigeria produces only very little from its prolific shallow-water and onshore oil fields as a result of massive crude oil theft, and BusinessDay learnt that some of the indigenous firms that acquired shallow-water oil fields from international oil companies are sinking under huge acquisition debts, which they cannot repay because they are forced to cut production or shut down completely.

“It is at a time of high oil price like this that you will expect the indigenous firms to produce and pay the loans they owe banks. But they cannot do this now because of crude oil theft. This signals that there is big trouble ahead for Nigeria’s banks that are exposed to the oil industry,” one banker said.

Apart from the crisis of having no foreign exchange to import petrol, Nigeria is dipping into its federation account to fund petrol subsidy. This is taking a toll on states and local governments, many of which are carrying huge bank loans.

International airlines plying the Nigerian route have about $600m of their funds trapped in the country, a development that forced Emirates to announce last week that it would suspend flights into Nigeria from September 1.

An IMF programme will be painful, according to one expert, but options are not absolute. “A country must choose from options available to it at any given time.”

A financial expert who once served as a government adviser said: “Nigeria is like a patient with diabetes and who has gangrene in one foot. His doctor says one toe of the foot has to be removed but the patient says no and resists the doctor’s counsel until when the whole foot must have to be taken out completely to save the patient.”

Ayo Teriba, CEO of Economic Associates, said the only way forward for Nigeria “is to fall back on her huge stock of idle but potentially valuable public assets and securitise them to unlock nontax, nonoil, revenue and issue investment grade bonds linked to these assets to replace maturing promissory notes”.

He said Saudi Arabia had securitised Aramco by listing it in the equity market and leveraging its market value to issue investment-grade securities at home and abroad.

“Nigeria can accelerate the listing and securitisation of all state-owned companies. India, China and Malaysia are commercialising idle but potentially valuable land to generate nontax revenue to fund their budgets. Nigeria should do the same for idle premises spread around the country to boost revenue,” he said.

According to Teriba, barracks that have been encroached upon by growing cities should be relocated and the current sites should be repurposed and redeveloped into luxury homes, malls, and offices that can generate lease revenue for the government perpetually.

He added: “India and Brazil are leveraging on idle infrastructure assets in rail, road, water and air transport systems, energy systems, and water systems to attract record inflows of foreign direct investment into government coffers.

“Nigeria should follow suit. Nigeria should turn to assets for new revenue and asset securitization to turn the current calamities around. If Nigeria continues to hesitate to do these, not even the IMF can help her.”

Muda Yusuf, chief executive officer at the Centre for the Promotion of Private Enterprise, said the IMF would always give conditions for such a bailout. He said one of such conditions would be foreign exchange management and discontinuation of fuel subsidy.