External Debt Increase No Cause For Concern – Report
Nigeria’s public debt burden will remain sustainable despite a notable increase in the Federal Government’s stock of foreign obligations following the issuance of two large Eurobonds, latest BMI Research has said.
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According to the report, “Broader challenges to the country’s fiscal position will instead stem from the government’s continued inability to channel allocated funds into capital projects, a trend that will likely become more pronounced in the approach to the 2019 general election.
“Nigeria’s Federal Government looks set to ramp up levels of recurrent spending in the year leading up to the country’s 2019 general election, scheduled for February”.
Part of the report also disclosed that, “As the vote nears, we see an increasing likelihood of the government looking to deliver on some of the campaign promises made in 2015, particularly tackling levels of insecurity. This will see resources directed towards the country’s security forces and spent of social handouts in an attempt to maintain social stability”.
Indeed, in December 2017, President Muhammadu Buhari approved a $1bn fund to be set aside for the state’s ongoing fight against Boko Haram, which we believe is indicative of the incumbent’s concerns regarding his government’s failure to deliver on those issues he was elected to tackle.
“In addition to the actual costs of holding the election, we expect these political considerations will see recurrent spending increase by 22.0% in 2018.
“Despite the increase in spending, we believe that the impact of the government’s budget deficit will be somewhat muted, largely due to another year of increasing oil revenues. The ongoing recovery in the price of crude, which our Oil & Gas team forecast will average $65.0/bbl (Brent) after averaging $54.8/bbl in 2017, will help support government revenues, nearly 60.0% of which will come from the hydrocarbons sector.
The report noted that, “ the boost to government income will prevent a more substantial increase in the size of the budget deficit, which we believe will rise to 3.1% of GDP, up from an estimated 2.8% in 2017.
The report, however, said: “the increase in external debt we have seen the issued by the government – it plans a $2.5bn issuance in Q118 to accompany the $3.0bn eurobond sold in November – does not represent a substantial deterioration in the sustainability of the country’s debt burden. At just 17.8% of GDP, Nigeria’s public debt burden represents one of the smallest in Sub-Saharan Africa, and with public external debt equating to just 4.6% of GDP, even after the issuance of another large eurobond this year, we see little threats to the sustainability of the country’s fiscal position as a result of the short-term increase in spending we forecast over the next 12 months”.