Coronavirus, oil threatens debt sustainability, says FBNQuest


The crisis occasioned by the coronavirus (Covid-19) pandemic, as well as the slump in oil prices, does not augur well for  the chances of Nigeria’s external debt  becoming sustainable,  FBNQuest Capital Research has said.

The firm stated this in a note obtained by Newsfieldglobal yesterday.

According to latest data released by the Debt Management Office (DMO),   Nigeria’s total public debt rose to $79.5 billion (N28.63 trillion) as of the first quarter of 2020. 34.89 per cent-$27.66 billion (N9.9 trillion)- of this amount is the total external debt,  while $51.64 billion (N18.64 trillion) is the total domestic debt.

Commenting on the debt statistics in the note titled, “Blended external debt service for the FGN,”FBNQuest Research said: “Total debt service on the FGN’s external obligations amounted to $473m in Q1 2020, consisting of $263m and $210m on market and non-market debt. This was $116m above the comparable year-earlier period.

“The burden, which totaled $1.33bn in 2019, should be comfortable for a country producing +/- 2.0mbpd crude in calmer days. The Covid-19 virus, the domestic lockdown, the weakness in the oil price and the production restraint of OPEC+ are all negatives for Nigeria’s debt sustainability.”

The firm, however, said it still regarded Nigeria’s debt burden as “manageable.”

“Based upon annual interest and fee payments in the 12 months to March 2020 and the stock of debt as at end-September, we calculate the average borrowing cost from the World Bank Group at 1.1per cent, the African Development Bank Group at 2.0per cent and Exim Bank of China at 2.8per cent. For the FGN’s commercial obligations, the average works out at 7.5per cent.

“If we put fx risk aside, it remains the case that external debt is less costly to service than domestic even when we allow for the sharp fall in rates on FGN bonds and NTBs,” it stated.

Furthermore, the firm pointed out that Nigeria’s principal repayments in Q1’20 amounted to $115 million, mainly to the World Bank Group and Exim Bank of Chin, noting that the FG’s next Eurobond maturity is $500 million due in January 2021.

Despite grappling with the impact of the coronavirus crisis and the sharp drop in oil prices, the Federal Government, FBNQuest noted, maintained its stance that it will not tap the Eurobond this year for financing of the 2020 budget deficit.

In addition, it said: “The FGN has declined the G20 offer of the deferment of bilateral debt service due this year. It was apparently guided by the suggestion that it should seek comparable treatment from private creditors such as holders of Eurobonds. The ratings agencies made anxious comments about such treatment.”

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