Andrew Roche, managing partner of the Paris-based financial consultancy Finexem, an expert in African sovereign debt, recently released his analysis of the worsening situation, “Nigeria’s External Debt: The Post-Election Boomerang.” He noted that Nigerian debt is fast approaching levels last seen in the days preceding a 2005 bailout and that the government must take decisive measures to stop the problem from getting worse. He also highlighted a key issue that is often overlooked: Nigeria has an ongoing challenge in revenue mobilization, and urgently needs fiscal consolidation to be able to face high debt servicing costs relative to federal government revenues.
“The Government should take advantage of its renewed mandate to implement measures to ensure the external position of Nigeria does not deteriorate,” Roche wrote in his paper. “This would begin by resolving outstanding disputed financial obligations and carefully considering new borrowing, thereby signaling to the financial community prudent fiscal stewardship and a transparent and constructive framework for future financing.”
Roche noted that Nigeria’s financial obligations include USD $22.1 billion in external debt, a 115 percent increase in just three years. Nigeria is exposed to additional financial liabilities through arbitration awards, including a judgement of USD $8.9 billion to a private contractor, Process and Industrial Development Limited, over a failed energy project. At the same time, Sunrise Power and Transmission, a Nigerian company, has filed a USD $2.3 billion claim with International Chamber of Commerce (ICC) in Paris over breach of contract related to the Mambilla power project.
The growing exposure is leading investors to speculate about the sustainability of Nigeria’s new debt profile given the nation’s dependency on high oil prices and the oil supply caps imposed by OPEC. “Questions abound concerning the end use of borrowed funds, the success of reforms and the ongoing vulnerability of Nigeria’s fiscal position given its growing external debt burden,” Roche wrote.
In comments to the Financial Times earlier this month, Roche asked whether the government was using borrowed cash to patch up holes in budgets, rather than investing in infrastructure or industry, or in efforts to diversify the economy from a heavy dependence on oil. “They have borrowed quite a bit, but where is the money being spent?” Roche said in the Financial Times.
According to a report last week on AllAfrica.com, the borrowed money has been used to “reflate” the economy and take the country out of recession as part of Nigeria’s Economic Recovery and Growth Plan. “When we came on board and we made an assessment, it was clear that our country was going into recession,” Zainab Ahmed, Nigeria’s Minister of Finance, told a press conference in Abuja. “When we did research on the best way to reverse the recession, it was found that was the best way to reflate the economy (was) putting resources in the economy so that consumption will increase.”
Despite this strategy, Nigeria’s economy slowed to 2.01% in the first quarter as the country’s dominant oil sector shrank, the National Bureau of Statistics said on Monday.
In the Wednesday conference call, Roche will present an in-depth overview of the situation and take questions from interested parties.