Nigeria, Others’ Debts Conundrum a Dilemma, Analysts Insist

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By Goddy Egene

Analysts at FBNQuest Research, have said the debt conundrum of African countries have left the continent in a dilemma considering the rising budget deficits coupled with the need to fund the deficits.

According to the analysts, if Africa was to stop depending on donors and multilateral funds to finance its economic development, it needs to evolve towards market-based financing for the quantum of financing required.

“In addition, African countries need to promote market-friendly policies that will attract capital to underserved sectors and allow the states to focus its limited financing on priority sectors such as education, health, and social services,” they said.

FBNQuest stated this in a report titled: “The impact of COVID-19 on the debt capital markets in Africa,” noting that as the coronavirus bites harder against the increasing debt-to-gross domestic product (GDP) ratios coupled with increasing risks in African countries, the pricing of new issuances in the international debt capital markets became relatively unattractive.

This, they said, made African governments to turn to other concessionary sources like the International Monetary Fund (IMF), World Bank and Development Finance Institutions for funding.

The FBNQuest explained that with the already rising value of the total public debts in many African countries, to combat the prevailing crisis of the coronavirus, some African countries opted for multilateral financing.

“One of such countries is Nigeria. The country, in the second quarter of 2020, requested $6.9 billion of multilateral financing from the International Monetary Fund (IMF), World Bank and African Development Bank (AfDB) to minimise the impact of the upsurge of the global pandemic.

“Part of these funds was to establish a $1.2 billion COVID-19 crisis intervention fund to upgrade healthcare facilities across the country and to provide intervention funds to the 36 states including the Federal Capital Territory (FCT),” FBNQuest said.

The analysts said activities in the domestic bond market significantly increased given the relatively low yields in the market. They noted that in the first half of 2020, seven corporate bond issuances were raised to the tune of N152.7 billion compared to N54 billion raised in three issuances in 2019.

According to the data by the Debt Management Office (DMO), the nation’s debt stock data at the third quarter (Q3) 2020 showed that the total public debt portfolio of the federal and state government combined stood at N32.22 trillion ($84.57 billion), an increase of 22.9 per cent but a decrease of one per cent in dollar equivalent due to the different exchange rate values within the periods.

“Nigeria’s total public debt showed that $31.99 billion (or 37.82 per cent of the debt) was external while $52.59billion (or 62.18 per cent of the debt) was domestic. Further disaggregation of Nigeria’s foreign debt showed that $16.74 billion of the debt was multilateral; $502.38million was bilateral (AFD) and another $3.26 billion bilateral from the Exim Bank of China, JICA, India, and KFW while $11.17 billion was commercial which are Eurobonds and Diaspora Bonds,” FBN Quest said.