Nigeria’s External Debt Reduction Due to High Yield Environment


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The Debt Management Office’s (DMO) most recent quarterly release on public debt shows that the FGN’s total external debt obligations decreased by c.USD403m relative to the prior quarter to USD39.7bn in Q3 ’22.

The reduction was due to a USD548m q/q decrease in debt obligations to the World Bank Group, which was partially offset by a USD149m increase in debt owed to other multilateral lenders, mainly the Islamic Development Bank.

On the basis of standardised metrics, the total external debt is roughly equivalent to c.9.2% of 2022f GDP.

The decrease in external debt can be linked to the FGN’s inability to tap the Eurobond market last year, due to tight financial market conditions, after it raised USD1.25bn in seven-year Eurobonds Mar ’22.

The debt stock also consists of state governments’ external borrowings. The Q3 ‘22 data for state governments’ external debt is not available. However, their total debt obligations stood at USD4.6bn as at Q2 ’22. Any adjustment to this figure is likely to be minor.

Debt owed to multilateral and bilateral lenders fell to 58.9% during the quarter, down from 59.6% in Q2 ’22, due to a -4% q/q decrease in debt obligations to the World Bank Group.

According to the 2023 budget, the FG intends to borrow c. NGN1.8trn (USD3.8bn) from external sources to fund part of its budget deficit.

Given the global high-interest rate environment, the FG will find it difficult to raise commercial debt such as Eurobonds to fund its budget.

Its preferred source of external borrowings are loans from concessional sources such as the World Bank due to their lower interest cost relative to commercial debt.

Despite the reduction in external debt, Nigeria’s rising total debt profile remains a source of concern due to the sustained growth of the domestic component.

Citing concerns around the country’s deteriorating debt and revenue metrics, Moody’s Investor Service, on Friday last week, downgraded Nigeria’s long-term foreign-currency and local-currency issuer ratings and foreign currency senior unsecured debt ratings to Caa1, from B3.

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