Nigeria’s ballooning debt to hit self-imposed limit by year-end, Bloomberg says

Nigeria is at risk of reaching its self-imposed debt limit of 40% of gross domestic product by year-end as it increases borrowings to plug a revenue shortfall.

Total loans jumped 17 percent to 46 trillion naira ($99.7 billion) as of December, raising the country’s debt as a proportion of gross domestic product (GDP) to 23 percent from 22.5 percent the previous year, data from the Debt Management Office showed this week.

The government also owes 23.7 trillion naira to the central bank, while the administration plans to borrow an additional 11 trillion naira this year. That will double the total debt to 80.7 trillion naira or about 40% of GDP, according to Bloomberg calculations.

The obligations will add to an increasing debt-service burden that consumed 80% of the West African nation’s revenue last year. The International Monetary Fund projects that debt service may consume all of the government’s collections.

“Looking at debt-to-revenue ratios tell us that Nigeria does carry default risk,” Charlie Robertson, the global chief economist at Renaissance Capital in London, wrote in a note in February.

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President Muhammadu Buhari, who leaves office by May 29 after serving two terms of four years, earlier this year requested approval from lawmakers to add central bank overdrafts to the country’s debt stock. Lawmakers have yet to approve the request.

The $440 billion economy has already sold $7.46 billion worth of bonds as of March 23, according to Bloomberg.

Issuance was up 32% compared with the same period last year as it ramps up borrowing to finance a $47 billion budget this year, half of which will be funded by debt mainly from the domestic capital markets. Dollar-denominated debt makes up only 42% of outstanding loans.

The nation has been largely locked out of the international debt markets after yields on its dollar notes rose to distressed levels, with its 2051 eurobond yielding 13% as of Thursday.

The worsening debt situation is causing alarm at home and among the global investor community especially given Nigeria’s poor debt service to revenue ratio.