Concessional loans over bonds for Nigeria as debt costs rise

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Nigeria says it will prioritize borrowing from concessional lenders such as the World Bank and African Development Bank as it looks to rein in interest payments.

The country’s 2019 budget presented by President Muhammadu Buhari in December and yet to be approved by lawmakers, envisaged the government issuing about 1.65 trillion naira ($4.6 billion) of new debt, half of which would be in foreign currency.

 “Our preferred option is to explore concessional sources as one of our major objectives is to reduce debt-service costs. Says Patience Oniha, head of the Debt Management office”

Nigeria has mostly used the Eurobond market for its external funding in recent years, rather than concessional lenders. It sold $5.4 billion of bonds last year and $4.8 billion in 2017, making it Africa’s most prolific issuer in that period after Egypt.

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While the country’s ratio of debt-to-gross-domestic product is low relative to other governments at about 25 percent, its small tax base means interest costs as a proportion of revenue are high. The federal government’s interest payments-to-revenue more than doubled to 60 percent last year from 27 percent in 2014, according to the International Monetary Fund. The figure is on course to rise to 82 percent by 2022.

“While the government is in regular discussions with the World Bank and African Development Bank, it won’t borrow from the IMF. We have made it clear we’re not in the situation where we need IMF support. The debt service-to-revenue ratio is rising. We’re not saying we are comfortable. Part of the reason for borrowing externally is to borrow at 8 percent rather than 18 percent. It’s cheaper. And we are assuming the naira will be stable.” Oniha says.

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