By Haruna Gimba with agency report
The Nigeria’s Debt Management Office (DMO) has defended the federal government’s Eurobond issuances to fund its spending plans, but said the nation needs to generate significantly more revenue beyond current levels to avoid debt distress.
While other developing and advanced countries have higher debt as a proportion of GDP than Nigeria, the nation’s revenue-to-GDP ratio is much lower, the DMO said.
With revenue-to-GDP at just 6.3%, Nigeria has one of the lowest ratios in the world, placing it 194 out of 196 countries, the DMO said, citing the World Bank’s Economic Outlook for 2020 report.
The statement was in response to criticism from a member of Nigeria’s rate-setting monetary policy committee that the West Africa nation risks debt distress due to its Eurobond obligations.
The increasing accumulation of Eurobonds in the external debt component is worrisome, Robert Asogwa, a member of the MPC, said, according to transcripts of the May meeting published on the Central Bank of Nigeria’s website.
“The unexplained government preference of Eurobonds at high interest costs, with the associated exchange rate risk may likely hurt Nigeria sooner than anticipated,” he said.
Africa’s largest economy had total outstanding debt of $100 billion as of March 31, according to the latest figures from the DMO. External loans comprising concessional and commercial debt stood at $40 billion with the balance of $60 billion owed to domestic issuers.
Yields on Nigeria’s external borrowings have risen sharply since Russia’s invasion of Ukraine — to an average of 12% — increasing the country’s debt service burden, which already consumes more than 90% of government income.
The DMO said that the country has had to issue Eurobonds due to the size of the annual budget deficit and the need not to crowd out the private sector from domestic capital markets.
“The public should take into cognisance other benefits of Eurobonds, which include increase in the level of external reserves, and opening up of opportunities for the private sector to issue” similar debt since 2011, the DMO said.
