BusinessDay

Swallowed in debt, Nigeria to push repayment far into the future, Finance Minister says

After years of claiming that Nigeria does not have a serious debt crisis, the government is now considering restructuring its debt and extending the repayment period of its credit obligations, Finance Minister Zainab Ahmed disclosed.

It has now emerged that President Muhammadu Buhari’s government that has borrowed the most in the country’s history, has already appointed consultants to advise the government in the face of a troubling debt-service burden that is threatening to overwhelm Africa’s most populous nation.

The government also plans to refinance domestic debt obligations that are due this year and next, while the country’s 20 trillion naira ($45.4 billion) in outstanding borrowings from the central bank will be bundled into government bonds, Ahmed said in a Bloomberg TV interview.

A nation is forced to refinance its debt when it has overborrowed and its earnings are no longer enough to cope with repaying the debt. A refinancing simply means pushing the can down the road so that maturities are spread well into the future. In the process Nigeria may have to go to the IMF for a deal, according to many analysts.
“For the larger portfolio of debt, we have just appointed a consultant” to assess how the government can “get additional relief by way of restructuring and negotiating to stretch out the repayments to longer periods,” Ahmed said. She didn’t provide further details.

Africa’s largest economy faces a rising debt service burden that the World Bank estimates will hit 102% of revenues this year. The government last week laid out an ambitious 20.5 trillion spending program for next year, half of which is not backed by revenues.

The move to restructure the country’s debts should increase the fiscal space necessary to deliver on the government’s priorities in the remainder of the time it has left, Joachim MacEbong, senior governance analyst at Stears Insights said. “However, the rate of debt accumulation must reduce so as not to handicap the next administration.”

Lawmakers have approved the government’s 2023 plan to borrow as much as 8.4 trillion naira to plug part of the shortfall — an estimated 10.78 trillion naira or 4.8% of gross domestic product.

“The budget is designed for us to raise financing 50% from domestic and 50% from the international financing and this will be a combination of concessionary sources and bilateral sources as well as the international capital market,” Ahmed said.

Nigeria will only consider a Eurobond issuance if yields move to levels close to where they were when it last tapped international markets, “with a little markup,” Ahmed said.

Nigeria sold a seven-year bond in March at a yield of 8.375%, far higher than a similar maturity it raised eight months earlier at 6.125%. It later shelved plans to borrow another $950 million in May after yields on outstanding bonds spiked to mid-double digits.

“As it is right now, it’s too expensive for us to borrow from the international capital market,” Ahmed said.

Instead, the government will cut tax waivers and incentives given to companies and also plans to introduce new excise duties or levies to ramp up revenues. The yield on the country’s longest tenured 2049 bond closed at 14.021% on Wednesday.

Ahmed expects that increased efforts to tackle crude theft, which has cut output to record lows, will produce results in the next three months.

“In the next one, two, three months, we should be able to hit the targets that we have in the budget, which is 1.6 million barrels a day,” she said.