Experts: FG’s Appetite for Eurobond May Likely Move Nigeria to Debt Distress

Nume Ekeghe

A Member of the Central Bank of Nigeria (CBN) Monetary Policy Committee, Asogwa Robert has warned that the federal government appetite for debts through Eurobond is likely to steer Nigeria towards debt distress in the near future.

Robert, in his personal statement in the just-released communiqué of the May 2022 meeting, stressed the worrisome state of Nigeria’s debt profile.

Another MPC, Adenikinju Adeola Festus also alluded to Nigeria’s debt standing and FG’s budgetary performance also being worrisome.

As of July 07, 2022, Nigeria’s foreign exchange reserve stood at $39.3 billion and as of March 31, 2022, Nigeria’s public debt stock stood at  $100.07 billion dollars.

Robert stated: “The escalating fiscal sector deficits with the attendant rising debt ratios are part of the weak links in the domestic economic environment. The poor revenue growth in a period of expanding government expenditures has continued to soar the budget deficit levels in the first quarter of 2022, similar to the trend witnessed in 2021.”

“The total debt stock as at the first quarter of 2022 has now risen to N41.60 trillion as compared with N39.56 trillion in December 2021, which represents a N2.04 trillion increase in a period of three months. As at end 2021, the debt service to revenue ratio was 76.0 percent, but may have jumped to about 80.0 percent by the first quarter of 2022.”

“Particularly worrisome about the debt structure, is the increasing accumulation of Eurobonds in the external debt component, while minimising concessionary loans. The unexplained government preference of Eurobonds at high interest costs, with the associated exchange rate risk may likely hurt Nigeria sooner than anticipated. Unfortunately, several other African countries are involved in this excessive rush for Eurobonds. Already, Nigeria is being mentioned by the IMF as one of the countries that may likely move into debt distress, given the staggering $100.07 billion dollars of public debt stock as at March 31, 2022, ”he added

On his part, Festus urged the federal government to reduce borrowing and advised that focus be shifted to enhancing its internally generated revenue to fund its activities.

He stated: “I am concerned about government budgetary performance. The rising share of governments in total credit to the economy by the banking system suggests crowding out effects of private-sector borrowings. Governments should divert to non-debt means of funding its activities. Government must grow its revenue base; reduce waivers to economic agents, plug leakages and wastes, and address the wasteful petrol subsidy system. The huge energy deficit must be urgently addressed.”

“My main concern in this meeting is the current elevated level of inflation. Inflation is bad for growth, employment, and poverty reduction. The continue increase in inflation rate since November 2021 is already affecting economic agents. Evidence shows that inflation expectations are positive, and second round effects of inflation are already reinforcing current levels of inflation. All our comparator countries have already raised their rates once or twice since January 2022. It is also important to curb the appetite of the government for debt,” he stated.