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CBN pays $4.45 billion external debt to World Bank, others in 2-month

Bamidele Samuel Adesoji by Bamidele Samuel Adesoji
March 24, 2020
in Business News, Politics, Spotlight
diaspora remittances, Total credit to the economy rose to N19.54trillion – CBN Governor, CRR debits, P-AADS, #EndSARS: CBN says funds in frozen accounts may be linked to terrorist activities, Covid-19: Court closures impacted revenue generation for courts - Emefiele, P&ID dispute: UK Court orders $200 million guarantee to FG, Leaked letter by Poultry Farmers Association triggered CBN emergency approval to import maize, nImplications of CBN's latest devaluation and FX unification, current account deficit, IMF, COVID-19, CBN OMO ban could give stocks a much-needed boost , CBN’s N132.56 billion T-bills auction records oversubscription by 327% , Nigeria pays $1.09 billion to service external debt in 9 months , Implications of the new CBN stance on treasury bill sale to individuals, Digital technology and blockchain altering conventional banking models - Emefiele  , Increasing food prices might erase chances of CBN cutting interest rate   , Customer complaint against excess/unauthorized charges hits 1, 612 - CBN , CBN moves to reduce cassava derivatives import worth $600 million  , Invest in infrastructural development - CBN Governor admonishes investors , Credit to government declines, as Credit to private sector hits N25.8 trillion, CBN sets N10 billion minimum capital for Mortgage firms, CBN sets N10 billion minimum capital for Mortgage firms , Why you should be worried about the latest drop in external reserves, CBN, Alert: CBN issues N847.4 billion treasury bills for Q1 2020 , PMI: Nigeria’s manufacturing sector gains momentum in November, CBN warns high foreign credits could collapse Nigeria’s economy, predicts high poverty, MPC Member, BVN, Fitch, Foreign excchange (Forex), Overnight rates crash after CBN’s N1.4 trillion deduction, Nigeria’s foreign reserves hit $36.57 billion; Emefiele keeps his word on defending the naira, CBN to support maize farmers, projects 12.5 million metric tons in 18 months, BREAKING: CBN Upscales Greenwich Trust Limited, grants it's operational license for merchant banking, AGSMEIS: CBN expand beneficiaries to 14,638., CBN expands access to mortgage financing

CBN Governor, Godwin Emefiele

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Debt servicing may constitute a major setback for the Nigerian economy in the year 2020, as the latest data obtained from the Central Bank of Nigeria revealed that Nigeria paid a whopping sum of $4.45 billion as external debt service in the first two months of 2020.

According to the data obtained from the CBN covering January and February 2020, the sum of $4.45 billion was paid Year-to-Date (YTD) in 2020 as external debt service, representing a 240% rise compared to the cumulative total debt service payment recorded in 2019.

Fitch downgrades Nigeria, blames Buharinomics for crisis in the economy , That $22 billion, Nigeria spends $1.31 billion to service external debt in 2019, up by 254% in 5 years, Confusion as ministry and presidency disagree over Finance Act start date, S&P downgrades Nigeria, Nigeria’s credit rating faces downgrade by Fitch, Oil price crash, Coronavirus: The trouble that lies ahead for Nigeria

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Debt Service payment hits all-time high

In 2019, the CBN record showed that a total sum of $1.34 billion was paid as external debt service payment. Meanwhile, a closer look at the CBN data showed the sum of $125.4 million was recorded in January, while $4.43 billion in February 2020.

A closer look at the historical trend of external debt service showed that the $4.55 billion paid in February 2020 to service external debt represents the biggest single tranche of payment recorded in Nigerian debt history.

[READ MORE: Nigeria spends $1.31 billion to service external debt in 2019)

It should be noted that Nigeria is obligated to pay lump sum as external debt obligations to various world organizations like World Bank, African Development Bank, Exim Bank of China, Exim Bank of India and so on. Data from the Debt Management Office (DMO) shows that Nigeria paid over $134.3 million to the World Bank in just Q3 2019.

External debt rose by 616% in 14 years

External debt service continues to hit deep on Nigeria, and this is due to the rising external debt accumulation. Following the successful Paris Club debt deal and the exit from the London Club debts, Nigeria’s external debt stock dropped to US$3.54 billion in 2006. Fast forward to 2019, the country’s external debt rose to $26.94 billion, representing 616% rise in 14 years.

At the end of Q3 2019, data obtained from the DMO database showed that the country’s total debt stock stood at $85.39 billion. Since 2006, Successive government in Nigeria have approached both local and foreign debt market obtain loans to finance their operations.

In terms of GDP, the country’s debt to GDP ratio remains relative sustainable for now at c.18% based on latest DMO debt data, however, the cost of servicing the debt may further put Nigeria in difficult financial strain. In 2019, debt servicing gulped over 50% of the country’s total revenue.

Foreign Reserves extend free fall as revenue source plunge

The outlook for Nigeria’s revenue in 2020 faces a huge problem as the country’s main revenue source (Oil) currently trades at a twenty-year low of $28pb. It should be noted while the drop in oil price significantly affects Nigeria in terms of revenue, debt service obligations is paid regardless and this is sometimes moved from the foreign reserves.

In 2019 (YTD), the foreign reserves dropped by $2.36 billion, a decline that has been largely attributed to the continued fall in oil price due to global headwinds arising from Pandemic COVID 19 and oil price war between one of the two largest oil producers in the world.

[READ ALSO: Nigeria pays $1.09 billion to service external debt in 9 months)

What next for the Nigerian economy?

Bearing current realities of revenue crisis, the Nigerian government slashed the price of PMS (Petrol), a move targeted to easing off revenue decline pressure and controversial subsidy payment in the country.

The continued spread of pandemic COVID continue to dampen growth outlook world over, and Nigeria ranks top among countries suffering worst hit in terms of the trickledown effect.

The Group Managing Director, NNPC, Mele Kyari, recently disclosed that as a result of the coronavirus pandemic, Nigeria has about 50 cargoes of crude oil that have not found a landing and this implies that there are no off-takers for them for now due to the drop in demand.

READ MORE: Debt servicing gulps N7.04 trillion under President Buhari’s administration

Without mudslinging the current administration at the wheel, Nigeria cannot afford more external debt borrowing.  Recall, that the CBN has just embarked on what was described as “exchange rate adjustment or unification”, by collapsing both inter-bank rate and Parallel markets, making them trade at the same rates. While the CBN has said this is not a devaluation, one thing obvious is that this is only an old while in a new bottle. That is, Naira has just been partially devalued.

What it means: With the partial devaluation of naira, it implies for every external debt service obligation Nigeria pays, it will cost more in terms of the dollar value, a luxury Nigeria can no longer afford.

 


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Tags: CBN ReservesExternal Debtexternal debt obligationexternal debt service/paymentForeign reservesNigerian Business NewsWorld BankWorld Bank and Nigeria
Bamidele Samuel Adesoji

Bamidele Samuel Adesoji

Samuel is an Analyst with over 5 years experience. Connect with him via his twitter handle

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