The Nigerian Debt Management Office (DMO) is in the process of raising an additional $2.8bn Eurobond in addition to the existing $8.3bn. According to the DMO, Nigeria’s external debt has increased by $10.7b (majorly driven Eurobond worth $7.0bn) to $22.1bn between to 2016 and 2018. This was motivated by a strategy to optimize the country’s debt mix by tapping into the relatively cheaper external debt market.
With a sustained increase in debt profile, concerns around Nigeria’s debt sustainability gained a global attention at the IMF/World 2018 annual meeting, with the IMF highlighting the need for the country to check further increase. While the Nigerian authorities continue to point to a low debt/GDP as a justification for a further increase in debt, the real concern for the fiscal authorities is the rising cost of debt servicing which stands at c.N2.0tn, representing 43% of FGN’s revenue at H1-2018.
Supported by significant output and price recovery, oil revenue is gradually driving up federally collected revenue, at N4.4tn in 2017 and H1-2018 (compared to N3.1tn in 2016). However, to sustain the current momentum, Nigeria need to choose between ramping-up revenue very quickly or cut spending, while ensuring a positive net impact of the accumulated debt. If not checked, sustained increase in debt servicing may crowd-out CAPEX completely in 2019.
