| Nigeria Economy |    1490 VIEWS  |
| Nigeria Economy | |
| 1490 VIEWS | |
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Friday, January 15, 2021 / 10:34 AM / by FBNQuest Research / Header Image Credit: Unsplash
Debt
service on the FGN's external obligations reached a total of USD507m in Q3 '20,
divided between USD263m and USD244m on market and non-market debt respectively.
The market figure was the same as in Q3 '19 and Q1 '20 because the FGN has not
issued Eurobonds, which pay semi-annual coupons, since November 2018. The
burden should be comfortable for an oil exporter on the scale of Nigeria, which
has a quota of 1.52mbpd for Q1 '21 under the latest OPEC+ agreement,
particularly when we allow for the current firmness of the crude price. The
strains emerge when we view debt service in the context of FGN revenue rather
than of oil export earnings.
The detailed reports of the Budget
Office of the Federation show that total debt service of NGN1.57trn in H1 '20
covered 95% of total FGN inflows. The ratio appears even worse than usual
because the lockdown in response to the Covid-19 virus constrained revenue in
the period and because collection tends to gather momentum in the second half.
By way of comparison, debt service of NGN2.45trn represented 59% of inflows in
2019.
The approved 2021 budget has total
debt service at NGN3.32trn, equivalent to 42% of total revenue. We suspect
that, not for the first time, the FGN's revenue projections will prove overly
hopeful, and that the ratio will therefore come out rather worse than implied
by its budget.
Based upon annual interest and fee
payments in the 12 months to end-September, and the stock of external debt as
at end-March, we calculate the average borrowing cost from the World Bank Group
at 1.1%, the African Development Bank Group at 2.0% and Exim Bank of China at
2.7%. For the FGN's market (commercial) obligations, the average comes out at
7.5%.
In April '20 the FGN borrowed SDR2.5bn
(currently USD3.6bn) from the IMF under its rapid financing instrument to
tackle external shocks (the virus in this case). Repayments of principal start
in 2023 and run through until 2025. The credit, unlike its traditional
arrangements, comes without the Fund's conditionality, which explains why the
FGN drew down the facility.
Repayments of principal in Q3 '20 came
to USD144m, notably USD59m for the World Bank Group and USD58m for Exim Bank of
China.
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Total external debt service (FGN and states: USD millions) |
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Sources: Debt Management Office (DMO); FBNQuest Capital Research |
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