Nigeria Seeks Cheaper Debt to Ease Pressure on Interest Payments

  • Government to increase spending by 12.6% to stimulate growth

Nigeria is planning to borrow more abroad than locally to fund next year’s budget in a bid to benefit from lower debt costs and reduce pressure on its interest bill, Budget and National Planning Minister Udoma Udo Udoma said.

“There is going to be a shift to foreign, especially concessional debt,” Udoma said in an interview Tuesday in the capital, Abuja. “Lower interest rates from foreign debt will help us manage our debt servicing, and also free domestic credit for the private sector.

The West African nation will probably boost its budget by 12.6 percent to 6.87 trillion naira ($22 billion) in 2017, according to preliminary budget documents. That’s to stimulate growth after the economy contracted in the first half of this year as a drop in prices and production of crude oil squeezed government revenue, and shortages of power and foreign currency weighed on output. The International Monetary Fund forecast gross domestic product will shrink by 1.7 percent this year.

The country’s debt stood at $61.45 billion by June, of which $11.26 billion was foreign borrowing, according to debt office data. At 13.2 percent of GDP, Nigeria has one of the lowest debt ratios in sub-Saharan Africa, while its debt-service costs as a percentage of revenue are above 35 percent, according to budget documents.

Borrowing Plan

This means “we have to be keen on the cost of new debt we take on,” Udoma said. “The Finance Ministry is finalizing a borrowing plan and will soon present figures of actual levels of debt and sources.”

Rates on Nigeria’s local-currency bonds are more than 8 percentage points higher than on its dollar debt. The nation’s $500 million bond due in July 2023 yields 6.86 percent, while its naira securities have an average yield of 15.25 percent, according to Bloomberg indexes.

Nigeria’s Debt Management Office has said it plans to raise as much as $4.5 billion in the international market through 2018, starting with $1 billion of Eurobonds this year. The African Development Bank plans to lend Nigeria $4.1 billion over the next two years, and $10 billion by 2019, the lender’s president, Akinwumi Adesina, said in a Sept. 26 interview.

“All our debt will be invested in capital projects that will help boost growth and create jobs,” Udoma said. “We expect that next year’s reflationary budget will get us out of recession completely, and then from 2018, we will reduce taking on new debt.”

The government plans to raise as much as $15 billion by selling assets to help fund the budget, according to Udoma. So far, some of the presidential jets have been put on sale, and some railroads have been put on concession to General Electric Co., which will invest $2.2 billion to revamp, provide rolling stock and manage the existing lines.

“A committee has been set up to identify the assets and soon we will list them,” he said. “We are looking at everything, including bringing forward some oil-licensing rounds and putting airports on concession.”

In a bid to avoid the delays that saw the 2016 spending plans approved about four months into the fiscal year, Udoma has already started discussing the 2017 budget with parliament.

“We have drafted it in consultation with lawmakers, and we will send the actual proposed budget to the House of Representatives this month,” he said. “It’s a document they will already be familiar with.”


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