September 18, 2020
By FBNQuest Research
Total debt service on the FGN’s external obligations amounted to US$287m in Q2 2020, divided between US$157m and US$130m on market and non-market debt. This was US$35m above the year-earlier period. The cost has risen because the FGN has increased its borrowing through soft loans, both multilateral and bilateral, whereas it has not tapped the Eurobond market since November 2018. The burden should be comfortable even when we recall that Nigeria is producing 1.41mbpd crude oil (excluding condensates) under its reduced OPEC quota.
It is a talking point because of Nigeria’s dire revenue collection. A short note put out by S&P in June shows that Nigeria had the worst ratio for interest payments/general government revenue in 2019 of the 21 African sovereigns it rated. Its 55% was followed by Ghana, Angola and Egypt (all over 40%).
If we put fx risk aside, it remains the case that external debt is less costly to service than domestic even when we allow for the sharp fall in rates on FGN bonds and NTBs.
Based upon annual interest and fee payments in the 12 months to end-June and the stock of debt as at end-December, we calculate the average annual borrowing cost from the World Bank Group at 1.1%, the African Development Bank (AfDB) Group at 2.1% and Exim Bank of China at 2.5%. For the FGN’s commercial obligations, the average works out at 7.5%.
Principal repayments in Q2 2020 amounted to US$70m, principally to the World Bank and AfDB groups.
Total external debt service (FGN and states; US$ millions)
Sources: Debt Management Office (DMO); FBNQuest Capital Research
Repayments of principal on the borrowing of US$3.3bn within the IMF’s rapid financing instrument to tackle shocks (such as the virus) begin in 2023.