Another ratio to underpin the credit ratings


Wednesday, May 13, 2015 8:55 AM / FBN Capital Research

The quarterly data release from the DMO shows public external debt at end-March at US$9.46bn, equivalent to 1.7% of estimated 2014 GDP. Unusually, the stock decreased by US$250m over the quarter, and across all creditor categories. These positive data help to underpin Nigeria’s sovereign external credit ratings (BB- from Fitch and B+ from S&P).

In May 2013 the DMO set a medium-term target of 60/40 for the optimum mix of the FGN’s domestic and external debt obligations. Our estimates suggest that the blend was 82/18 in March.

The target was driven by its calculation of relative servicing costs, for which it used the rates for market borrowing. In reality, loans on concessional terms from multilateral agencies accounted for 69% of external debt in March.

The new administration has ambitious plans for the creaking infrastructure, for which it is expected to add to the FGN’s stock of concessional loans. Other possibilities could be PPP arrangements and the use of guarantees.

From an aggregate perspective, Nigeria is not submerged under a mountain of private-sector external debt. The nominal value of all corporate Eurobonds, for example, stands at US$3.65bn. 

The stock of public external debt at end-December included US$3.27bn borrowed by state governments and guaranteed by the FGN. Lagos State was by far the largest debtor with outstandings of US$1.09bn. All state government debt was multilateral other than US$120m supplied by the Agence française de développement (AFD, the French state development house).  

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