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Nigeria’s foreign debt has breached a 15-year trigger

Nigeria’s external debt hits a 16 year high of $27 billion in December 2019 just higher than the $20.8 billion in external debt level as at 2005.

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It’s been so long now since Nigeria celebrated the repayment of the Paris Club debt. The narrative back then was that paying the debt will free up cash that will be channeled towards capital expenditure and then usher in the economic boom we have craved for decades.

Instead what we got was a higher spending on recurrent expenditure, limited capital expenditure and a lot of stolen wealth. We are somewhat back full circle.

Nigeria’s external debt hits a 16 year high of $27 billion in December 2019 just higher than the $20.8 billion in external debt level as at 2005.

By December 2006, after we had paid off Paris Club, Nigeria’s external debt was $3.5 billion. Years of lower oil prices, disproportionate spending and defense of the exchange rate has seen the external debt creep back up.

READ ALSO: CBN raises alarm over Nigeria’s rising debts profile

Between the start of 2015 and December 2020, Nigeria’s external debt profile has risen from $9.7 billion to $27 billion.

Most of these debts were borrowed in the first 4 years of the President Muhammadu Buhari’s administration via multilateral, development, bilateral and commercial loans (Eurobonds and Diaspora bonds).

The government claims, it had no choice, seeing its oil revenues fail to meet up with target and thus unable to fund Nigeria’s huge infrastructural deficit required to propel economic growth.

While Nigeria’s external debt to GDP remains under 10% and well below global benchmarks, critics of the government have worried about the debt service commitment of about $1.5 billion at the current debt levels.

Another important metric to ponder on is the relationship between the external debts and the external reserves.

READ MORE: Finance Minister, Zainab Ahmed says Nigeria’s VAT collection rate is low

Available data shows Nigeria’s external debt levels of $27 billion is now about 75% of external reserves of $35 billion. This is the highest we have seen since 2005. An inverse of the data means Nigeria’s external reserves can now only cover 133% of its external debts and 23x its debt service.

The rising foreign debt profile and the sliding external reserves once again highlights how vulnerable Nigeria’s economy is to external shock. Should the oil price war persist and global crude oil demand fail to pick up, things could go deep south for the country’s finances.

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Why this matter: Unlike in previous economic crisis in 2009 and 2016, Nigeria’s external reserves may not provide the buffer it requires in 2020. CBN is committed to billions of dollars in forex forward sales and has seen foreign demand for its bills dwindle of late. Without an uptick in crude oil prices and sales, reserves may fall below $30 billion reducing the cover to external debt to below 100%.

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READ ALSO: Bulls boost global financial markets as gold hits 7-year high

This could trigger another round of devaluation and set the stage for a final float of the exchange rate. Various policy recommendations following the COVID-19 pandemic have called for a more flexible exchange rate to relieve the pressure on the external reserves. If this happens, the exchange rate could take a plunge before finding its level.

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The government has an option of going to the IMF and has made known its plans to borrow $6.5 billion. IMF also promised to make $3.5 billion available. That money won’t come without stings such as economic reforms with subsidy removal and market driven exchange rate on the cards.

What’s in it for investors: Investors in Nigerian Eurobonds will want to be sure that government will be able to pay down its principal when the loans start to mature.

A 2021 bond is expected to mature in January. Nigeria’s ability to fulfil its loan obligations will rely on some of the narratives outlined above.

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READ MORE: States may owe salaries in coming months, as Governor laments fiscal woes

Local portfolio investors may have to continue picking up stocks and waiting on the long term to offload. Foreign portfolio investors are still selling and remain apprehensive about returning to the equities market.

The recent crude oil price war and the coronavirus pandemic has demonstrated just far the world can change in just one month. Between an IMF loan, OPEC+ agreeing to a deal and the impact of coronavirus ebbing, the world could be a different place in a couple of months and Nigeria could manage to sojourn on. Until then, follow the numbers that matter.

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Nairametrics is Nigeria's top business news and financial analysis website. We focus on providing resources that help small businesses and retail investors make better investing decisions. Nairametrics is updated daily by a team of professionals. Post updated as "Nairametrics" are published by our Editorial Board.

1 Comment

1 Comment

  1. Ebuka

    April 20, 2020 at 1:02 pm

    Keep up the good work Nairametrics

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Cryptocurrency

VP Osinbajo disagrees with CBN, calls for crypto regulation

Vice President Yemi Osinbajo had recently called for Crypto regulation knowing fully well the role Crypto play in the global financial ecosystem.

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Solar, FG to slash import duties on tractors, buses, others in 2020 Finance Bill, Nigeria will not issue Eurobonds, says Vice President Yemi Osinbajo, FG guarantees mortgage loan to low income buyers at low interest rate, FG inaugurates gold refinery project in a landmark event

The Vice President of Nigeria, Prof. Yemi Osinbajo has recently called for Crypto regulation knowing fully well the role Crypto plays in the global financial ecosystem as he opined that such disruption often makes room for progress.

Osinbajo also advised the SEC, and Central Bank of Nigeria in creating a regulatory road map, while fully appreciating the stance of the CBN, Nigerian SEC, and law enforcement agencies on the possible abuses of crypto assets.

The vice president further stressed the importance Cryptocurrencies would play in the coming years as they will most likely challenge traditional banking, including reserve banking, in ways the world hasn’t yet imagine, stressing the need for Nigeria in being prepared for such a seismic shift.

He also called for scaling up of government-private sector interventions because, “the task of national development requires that we fire on all cylinders, after all at one stage China was building 1.9m housing units per year.”

READ: Why Crypto black market is thriving in Nigeria

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Business

Traffic violation: Lagos says LASTMA officials to carry body cameras in next few weeks

Within the next few weeks, LASTMA officials will start wearing body cameras to monitor traffic violations.

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LASTMA, Lagos State Traffic Management Authority, LASTMA court case, LASTMA fine

The Lagos State Government has said that officials of the Lagos State Traffic Management Authority (LASTMA) will start using smart body cameras within the next few weeks to monitor traffic violations.

This is coming after a viral video that has been in circulation, showed a man driving his Sports Utility Vehicle (SUV), driving against traffic along International Airport Road, hit a policeman with the car and he fell over the bridge when attempts were made to apprehend him.

This was disclosed by the General Manager of the LASTMA, Olajide Oduyoye, while answering questions on a Channels Television Programme monitored by Nairametrics, Sunrise Daily, on Friday, February 26, 2021.

The LASTMA general manager who pointed out that technology is the way to go, said that Governor, Babajide Sanwo-Olu, is on top of that and in 2020, approved the deployment of technology to improve our communication for the agency.

READ: Lagos says blue, red rail lines will be ready by December 2022

What the LASTMA General Manager is saying

Oduyoye, while answering questions during the interview said, ‘’I’m glad that you said that and of course technology is the way to go, our Governor, Babajide Sanwo-Olu is very much on top of that. He approved the deployment of technology for us to improve our communication last year 2020.

This year, we are definitely hoping in the next few weeks to start what you would say non-approachable offence dealings. That means we are going to be having body cameras on officers to capture incidences because things happen so fast and you don’t really have time to say okay let me get my camera and everything, but if you have your body camera on that is recording, then you can capture all sorts of different things that you can use against typical offenders.’’

While lamenting that chronic traffic violators do often remove traffic signs to deliberately disobey road laws, the LASTMA boss warned road users to obey traffic laws and not attempt to flee when caught.

What this means

  • The members of the general public have often called to question, the mode of operation of LASTMA, with calls for reforms which includes the deployment of technology in their operations.
  • This has often led to conflict between the officials of the agency and motorists some of who deny allegations against them and accuse LASTMA officials of extortion and being overzealous.
  • The LASTMA officials, who sometimes are at the receiving end, have had to deal with attacks on them by traffic violators, in the course of discharging their duties.
  • The deployment of technology especially the smart body cameras will go a long way to drastically reduce these conflicts and make the operations of LASTMA more credible.

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