Thursday, February 11, 2016 09:22 AM /FBNQuest Research
The latest report from the DMO shows FGN external debt at US$10.72bn at end-December, equivalent to 2.1% of estimated 2015 GDP. (When we add its domestic debt, we arrive at a burden representing 11.0% of GDP). The projected net external borrowing in the FGN’s 2016 budget proposals of US$4.5bn would increase the stock by 0.9% of GDP.
The preliminary conversations with the World Bank and the African Development Bank on budget support totaling US$3.5bn could add a further 0.7%. These loans are favoured by the FGN for their low cost and the close relationships with the lenders. Only the existing Eurobonds in the chart were contracted at market rates.
The federal external debt stock is therefore 86% concessional. This reflects the debt relief enjoyed by Nigeria in the mid-2000s. We also note that its bilateral and multilateral partners are in no hurry to adjust their terms in the light of its lower-middle income status.
The state governments’ share of the debt amounts to US$3.37bn, and is included because it is guaranteed by the FGN. The lenders are multilateral agencies and, in a few cases, France’s Agence française de développement
The oil price shock has closed pricing differentials for the FGN. Eurobond issuance in the middle of the curve would probably be priced at around 950bps based on current yields, and so more than 250 bps below FGN bonds of similar tenor. The differential has narrowed by about 200bps in the past year.
Although the FGN is said to have put the Eurobond issuance on the back burner, we believe this is temporary. The FG is still likely to favour a new Eurobond issue, whatever the size, to flag a strong credit story under temporary fiscal pressure.