A Healthy Message on External Debt

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Thursday, October 07, 2021 / 02:55 PM / by FBNQuest Research / Header Image Credit: 24news


The DMO's latest quarterly data release shows that the FGN's external debt obligations increased by USD610m in Q2 '21 to USD33.47bn, equivalent to just 8.4% of 2020 GDP. The World Bank Group accounted for USD520m of the increase and remains Nigeria's largest creditor. This underpins one of the core selling points in the Nigerian credit story, made recently in the Eurobond roadshow for investors, that more than tw0-thirds of the FGN's external debt is due to nonmarket lenders on concessionary terms. The total stock includes borrowings by state governments, which amounted to USD4.77bn at end-December, because they are guaranteed by the FGN.


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Parallels with almost all EM/frontier economies on external debt and debt-service indicators are favourable. Kenya has a marginally higher share of its external debt due to nonmarket players (70.0% in March) but its external debt/GDP ratio of 35.5% dwarfs that of Nigeria. Further, the domestic/external blend of its total public debt is 49/51, compared with 61/39 in Nigeria.

 

A recent study by a research unit at the College of William and Mary in the US reported that no fewer than 40 lower and middle-income countries (LMICs) have debt due to China above 10% of GDP. (The figure for Nigeria is 0.9%.) It also put the debt created within China's Belt and Road Initiative at USD385bn and maintained that the average LMIC is underreporting its debt-service obligations to China by close to 6% of GDP.

 

The market/nonmarket and domestic/external ratios will look rather different in the DMO's next report for Q3 '21 because it will include the FGN sales of Eurobonds in late September to raise USD4bn.

 

The original plan had been to raise USD3bn so the launch has to be viewed as successful, not least because Egypt came to the market shortly afterwards and priced its offer outside Nigeria's. The EM debt and other markets have adopted a risk off stance as participants dwell upon rising inflation fears in the advanced economies, and the related fear that G7 central banks, led by the Federal Reserve, will unwind asset purchase programmes and hike policy rates sooner than had been anticipated. Nigeria has not been spared by the rise of its crude price above USD80/b. In a few cases yields on sub-Saharan sovereign debt have widened by about 200bps.

 

FGN external debt by lender group, June '21 (% shares)                          TOTAL: USD33.47bn

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Sources: Nigerian Stock Exchange; Bloomberg; FBNQuest Capital Research


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