Govt eyes concessional loans to reduce rising debt costs

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The Federal Government yesterday said it will prioritize borrowing from concessional lenders such as the World Bank and African Development Bank (AfDB) as it looks to rein in interest payments.

Director General, Debt Managemnt Office (DMO), Patience Oniha, who spoke in Abuja said the concessionary option remained the way to go.

She said: “If you were to ask me if we’re going to issue Eurobonds this year, I’d say we’ll explore all the options. Our preferred option is to explore concessional sources. One of our major objectives is to reduce debt-service costs.”

Budget 2019 presented by President Muhammadu Buhari in December and yet to be approved by lawmakers, envisaged the government issuing about N1.65 trillion ($4.6 billion) of new debt, half of which would be in foreign currency.

Oniha said while the government is “always speaking” with the World Bank and AfDB, it won’t borrow from the IMF.

“We’ve made it clear we’re not in the situation where we need IMF support,” she said.

She said the DMO is continuing with a plan to increase its proportion of foreign liabilities to 40 per cent to reduce funding costs. The ratio is probably somewhere between 30 per cent and 40 per cent following the sale of $2.9 billion of bonds in November. Yields on Nigerian Eurobonds average 7.3 per cent, half that for naira bonds, according to data compiled by Bloomberg and JPMorgan Chase & Co.

She said: “The debt service-to-revenue ratio is rising. We’re not sitting and saying we’re comfortable. Part of the reason for borrowing externally is to borrow at eight per cent rather than 18 per cent. It’s cheaper. And we’re assuming the naira will be stable.”

Nigeria also plans to sell a N15 billion green bond, Oniha said, without giving a time frame.

Africa’s biggest oil producer has mostly used the Eurobond market for its external funding in recent years, rather than concessional lenders. It sold $5.4 billion of bonds last year and $4.8 billion in 2017, making it Africa’s most prolific issuer in that period after Egypt. Bank of America said in a research note this month that Nigeria would probably print another $3 billion of securities in the second half of this year.

Its Eurobonds have returned 14.4 per cent since the end of last year, second only to Kenya among sovereigns in emerging markets, according to Bloomberg indexes.

While the country’s ratio of debt-to-gross-domestic product (GDP) is low relative to other governments at about 25 per cent, its small tax base means interest costs as a proportion of revenue are high. The Federal Government’s interest payments-to-revenue more than doubled to 60 per cent last year from 27 per cent in 2014, according to the International Monetary Fund (IMF).

The figure is on course to rise to 82 per cent by 2022, which the Washington-based lender says is “unsustainable.”

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