DMO says Nigeria can borrow up to $22 bln, Analysts doubt overseas borrowing target

The maximum amount that Nigeria can borrow in 2017 from both local and foreign sources without breaching the debt threshold it has set for itself is $22.08 billion, the Debt Management Office (DMO) said.

The country slipped into recession for the first time in 25 years in the second quarter, largely due to low global oil prices. Crude oil sales account for about two-thirds of government revenues.

The government has laid out plans to spend a record 6.866 trillion naira ($22.55 billion) to help pull Nigeria out of recession in a draft 2017 budget sent to parliament for approval.

Spending this year was 6.06 trillion naira, but the government has struggled to fund this, and analysts were sceptical that it would manage to meet the targets for overseas borrowing that it has set for the next few years.

The DMO said in its debt sustainability report that Nigeria can afford to borrow $22.08 billion next year, equivalent to 5.89 percent of projected GDP, if it wants to keep overall borrowing under the limit of 19.39 percent of GDP that the government has set.

For this year, the total public debt-to-GDP ratio is projected at 13.5 percent, the DMO said in the report, seen by Reuters on Wednesday. It said total public debt stood at 28.10 percent of revenue as of 2015, slightly above a 28 percent threshold set by the government.

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“VULNERABLE TO SHOCKS”

As of June 2016, Nigeria’s public debt stood at 16.29 trillion naira, up from 12.60 trillion at end-December.

“Although the level of debt stock is still appreciably low relative to the country’s aggregate output (GDP), the debt portfolio remains mostly vulnerable to the various shocks associated with revenue, exports and substantial currency devaluation,” the DMO said.

It said its analysis showed that Nigeria’s debt position had deteriorated in 2016 from a low risk of debt distress to a medium risk.

“This highlights a potential risk to the debt portfolio, which could be exacerbated by the developments in the international oil market, as further decline in global oil prices would exert undue pressures on the already fragile economy, including the debt position,” the DMO said.

It said Nigeria’s overall debt was 84 percent domestic and 16 percent foreign, but that the government wanted to move to 40 percent foreign debt by the end of 2019 to speed up infrastructure projects and cut borrowing costs.

President Muhammadu Buhari has asked parliament to approve $30 billion of foreign borrowing to fund planned infrastructure projects until 2018, according to a letter read out to lawmakers on Tuesday.

The proposed borrowing includes the sale of Eurobonds worth $4.5 billion and budget support of $3.5 billion, according to the letter.

“HARD TO IMAGINE”

“It’s difficult to imagine how external debt could rise from where it is now, at around $10 billion, to $40 billion in two years. The market will probably want to clarify what the borrowing programme entails, as it looks too large to be factual,” said Samir Gadio, head of Africa strategy at Standard Chartered Bank.

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Nigeria has been holding talks for months with the World Bank, China and other institutions to fund a 2016 budget deficit of 2.2 trillion naira ($7.2 billion), but so far only the African Development Bank has publicly confirmed a planned loan of $1 billion.

Nigeria also wants to sell $1 billion in Eurobonds by the end of the year although, as of Wednesday, no bank had been appointed to arrange the issue.

Alan Cameron, an economist at Exotix, said Nigeria had raised just over $500 million in offshore borrowing this year, the bulk of which was from the World Bank. “The recent track record of raising external funding will leave many wondering if they are serious.”

The DMO proposed the new borrowing next year to be split as $5.52 billion from Nigeria’s domestic markets and $16.56 billion from offshore, subject to local market conditions and the options available abroad, adding that foreign borrowing should have a minimum maturity of 15 years.

It said it was assuming a baseline scenario of 3.45 percent GDP growth for 2017 and a fiscal deficit of 1.77 percent of GDP for 2017-2019.

 

 

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