Debt Management Office (DMO) has revealed that as at June 2016, Nigeria’s external debt accounted for only 18.33 per cent of the country’s total debt stock of about N16 trillion.
Director General of DMO, Dr Abraham Nwankwo, who disclosed this in a statement recently, said that within that very small external debt, concessional debt (with average interest rate of about 1.25 per cent per annum and average tenor of about 40 years), accounted for about 80 per cent of the total.
He also revealed that, the external debt service accounted for an insignificant proportion of the total public debt service expenditure. The annual external debt service expenditure for the last five years was always less than 6.5 per cent of the total public debt service outlay.
These features reflect the strategic stance taken after the exits from the Paris and London Club debts in 2005 and 2006 respectively. Nigeria deliberately decided to develop and depend more on the domestic bond market as a reliable alternative source of borrowing by the government. This was to avoid compelled dependence on external sources,” he said.
According to Nwankwo, the external debt stock is currently about 23 per cent of the export earnings, whereas the applicable threshold is 150 per cent, adding that this is seven times stronger than it needs to be.“
Similarly, the external debt service is currently about 0.74 per cent of total export earnings, compared to the applicable threshold of 20 per cent. This means that this liquidity indicator is 27 times stronger than what is required to guarantee that the external debt can be serviced as and when due. In addition, there is an administrative safeguard.
Since 2005, Nigeria’s prudential public debt management practice has been that debt service charge is the topmost item in the sequence of the line of expenditures in the budget.
Only very few other developing economies could boast of such a healthy and attractive external debt condition” the DG, explained.
Nwankwo explained that Nigeria’s external debt is uniquely of top investment grade and this is the reason that in spite of global economic and financial tribulations, Nigeria’s eurobonds have continued to trade creditably at stable low yields relative to the weight of the challenges and compared to other countries’ eurobonds.“
Empirically, this position is well supported by investors and the markets. That is why in spite of global economic, financial and foreign exchange tribulations, as well as local structural challenges which have manifested since mid-2014, Nigeria’s eurobonds have continued to trade creditably at stable low yields relative to the weight of the challenges and compared to other countries’ eurobonds.
For example, Nigeria’s 10-year eurobond (2013-2023), which traded at an average yield of about 6.945 per cent for 2015 and at 8.68 per cent for January 2016, has been trading at a daily yield of between 6.147 per cent and 6.571 per cent so far throughout the month of September 2016.
Similarly, the current yields on both the 2013 – 2018, 5-year eurobond and the 2011-2021, 10-year eurobond are lower than their January 2016 figures by about 280 basis points and 215 basis points, respectively. In summary, Nigeria’s eurobonds are substantially in greater demand and are more highly priced than they were about a year ago,” he noted.