March 23, 2021/Proshare
By FBNQuest Research
We learn from the DMO’s quarterly data releases that the FGN’s external debt obligations increased by USD1.36bn in Q4 ’20 to USD33.35bn, equivalent to 8.4% of annual GDP. This was largely explained by a rise in net borrowing from the World Bank Group (USD790m) and the African Development Bank (AfDB) Group (USD300m).
Additionally, there was a small increase in the FGN’s debt to the IMF under the rapid financing instrument due to exchange-rate movements (because the Fund’s transactions are denominated in its own SDRs). The total stock includes borrowings by state governments of USD4.77bn at end-December because they are guaranteed by the FGN.
The share of the total external debt stock due to multilateral and bilateral creditors on concessionary terms rose from 65.1% to 65.9% in Q4. Drawing on comparative data provided by S&P, we see that the ratio was better (ie higher) than five rated sovereigns in sub-Saharan Africa in 2019 (C0te d’Ivoire, Ghana, Angola, Chad and Zambia). Along with the very low external debt/GDP ratio, this is evidence of the decent external balance sheet and a strong selling point on any FGN roadshow.
The World Bank Group was again the largest creditor. Its disbursements picked up in the quarter and the FGN has not tapped the Eurobond market since November 2018.
Nigeria is one of 73 sovereigns eligible for the G20’s Debt service suspension initiative (DSSI), which was launched in April 2020 and extended in October, but has not applied for fear of the impact on its credit ratings and its ability to borrow from the private sector. Even a pledge to seek (rather than a condition to secure) “comparable treatment” from the private sector has created alarm in many debtor governments. The Republic of Benin has similar reservations about the initiative and raised 1bn Eurosfrom Eurobond sales in January.
One government in sub-Saharan Africa (Zambia) has defaulted on its external obligations and perhaps another three are close. The COVID-19 pandemic has severely tested already weak public finances in many cases.
An initiative at a far earlier stage than the DSSI is the proposal for a new allocation of SDRs to IMF members. This was blocked by the previous US administration but has now run into a new obstacle: can the allocation be limited to members most in need and, if it has to benefit Switzerland as well as Nepal, can the former somehow transfer its allocation to the latter?.
FGN external debt by lender group, Dec 2020 (% shares) TOTAL: USD33.35bn
Sources: Debt Management Office (DMO); FBNQuest Capital Research
