June 23, 2021/Proshare

By FBNQuest Research  

We see from the DMO’s quarterly data releases that the FGN’s external debt obligations decreased by USD490m in Q1 ’21 to USD32.86bn, equivalent to just 8.2% of annual GDP. The fall can be tied to the FGN’s decision to pay down, rather than refinance the USD500m Eurobond that matured in January. The debt stock/GDP ratio is one obvious selling point in any roadshow for investors. Another is the fact that the share of the total stock due to multilateral and bilateral lenders on concessionary terms was 67.0%, compared with 65.9% the previous quarter. The total stock includes borrowings by state governments, which amounted to USD4.77bn at end-December, because they are guaranteed by the FGN. 

There is a window for the FGN to return to the Eurobond market for the first time since November 2018, given the signals that portfolio investors continue to hunt yield despite a handful of defaults and reschedulings on the continent.  Ghana raised USD3bn in March including the novelty of a zero-coupon issue and Kenya USD1bn this month. Cote d’Ivoire and Senegal, both members of the Franc Zone, have achieved successful EUR-denominated issues on the market this year.  

The FGN borrowed from the IMF in April 2020 under its rapid financing instrument to counter external shocks (the COVID-19 virus in this case). Although no principal repayments are due until 2023, the USD outstanding debt to the Fund changes in the DMO’s quarterly releases because the loan is made in SDRs.  

The FGN signed the loan agreement because it came without binding conditions. Talks with the World Bank, the FGN’s largest external creditor, over a USD1.5bn credit have dragged for more than 12 months because of conditions.  

We can perhaps identify the contentious issues with the Bank from the Fund’s press release issued last week after the virtual visit to Nigeria by IMF staff. The release again calls for unification of the exchange-rate windows and the launch of a “market-clearing exchange rate” as well as the use of bills of short maturity for liquidity management rather than the cash reserve requirement. The Fund’s thinking is similar to some of the themes in Resilience through Reforms, the Bank’s latest publication on the Nigerian macro.

 FGN external debt by lender group, Mar 2021 (% shares) Total: USD32.86bn

Sources: Debt Management Office (DMO); FBNQuest Capital Research