Yesterday, President Muhammadu Buhari submitted a
request for the approval of additional N2.3tn ($6.2bn) worth of external debt
to the senate. According to the request, the loan is aimed at part-financing
the N5.6tn budget deficit for 2021 with critical focus on funding capital
expenditure. Noteworthy to mention, the loan request had been provided for as
part of the 2021 appropriation act, thus the current presentation is merely to
fulfill legal provisions. Interestingly, the FG recently got approval for $1.5bn
and 995.0m Euros worth of multilateral loans few weeks ago.
Last year, the Federal government relied heavily on a slew of borrowings
largely from multilateral organisations such as the IMF, World Bank and AfDB.
The huge reliance on the debt market was necessitated by shocks to revenue
generation. Similarly, the FG appears to be leaning heavily towards the
external debt market in 2021, to spend its way out of the economic slowdown.
However, the concern remains Nigeria's rising debt sustainability risk.
At the end of 2020, Nigeria's total debt stock (national & sub-national)
stood at N32.9tn (or $86.8bn). The government has historically justified its
rising debt profile by the compliant debt-to-GDP ratio of less than 30.0%.
However, we reiterate our position that the FG's debt service cost as a
percentage of revenue is a fairer reflection of the country's debt
sustainability position. This is because a huge proportion of nominal GDP does
not contribute to government's ability to repay its obligations.