IMF sup­port smoothens Nige­ria’s path to in­vestors as bond yields fall

Business Day (Nigeria) - - FRONT PAGE -

Nige­ria’s early move to tap cheap loans has im­proved its risk per­cep­tion among for­eign in­vestors, lead­ing to a fall in the coun­try’s bor­row­ing costs.

Sup­port from the IMF and other devel­op­ment in­sti­tu­tions, along with a nascent re­cov­ery in oil prices, has boosted in­vestor con­fi­dence, ac­cord­ing to Ed­win Gu­tier­rez, Lon­don-based head of emerg­ing-mar­ket sov­er­eign debt at Aberdeen Stan­dard In­vest­ments.

“Nige­ria has been an out­per­former of other sub-sa­ha­ran African cred­its dur­ing that time,” Gu­tier­rez said.

Yields on Nige­ria’s dol­lar bonds ma­tur­ing in 2047 fell from an all-time high of 13.2 per­cent on March 19 to 9.1 per­cent on Wed­nes­day.

Still, this doesn’t re­duce Nige­ria’s un­der­ly­ing weak funda

men­tals given the wide deficit and low for­eign-ex­change re­serve buf­fers amidst low oil prices, said Mo­hamed Abou Basha, di­rec­tor and head of macroe­co­nomic anal­y­sis at Efg-her­mes.

In­vestors seem un­con­cerned. The cost of pro­tect­ing Nige­ria’s debt against de­fault has dropped by 520 ba­sis points since March 18, an in­di­ca­tion that cred­i­tors are feel­ing more se­cure hold­ing the coun­try’s debt.

Risks have also re­ceded in the past few weeks af­ter the IMF dis­bursed its loan to Nige­ria. De­spite the coun­try’s pub­lic debt set to rise to 34.8 per­cent of GDP this year, from 29.1 per­cent in 2019, ac­cord­ing to the IMF, it’s a rel­a­tively low level when com­pared with most emerg­ing mar­kets.

This is as the West African nation pre­sented a re­vised $27 bil­lion­bud­get­to­cab­i­net­thatkept spending­in­tact,with­apro­posed record deficit of N5.4 tril­lion ($13.9 bil­lion), which will be fi­nanced mainly from new debt.

Nige­ria’s econ­omy has been hit by the coro­n­avirus pan­demic and the slump in the price of oil, the nation’s top ex­port. The plunge in crude has forced the cen­tral bank to de­value the naira, while in­fla­tion has been above its tar­get band for al­most five years.

Africa’s largest econ­omy has lined up am­bi­tious bor­row­ing plans in its do­mes­tic bond mar­ket and has se­cured $3.4 bil­lion from the In­ter­na­tional Mon­e­tary Fund.

It ex­pects $3.5 bil­lion from other lenders and has used the col­lapse in oil prices to scrap fuel sub­si­dies that cost the coun­try at least $2 bil­lion a year.

Africa’s largest crude pro­ducer,whichre­lieson­sales­from the com­mod­ity for about half of gov­ern­ment rev­enue, projects that its oil earn­ings will drop by at least 80 per­cent this year.

The deficit could widen to 6.8 per­cent of gross do­mes­tic prod­uct from 4.8 per­cent in 2019, ac­cord­ing to the IMF, and un­less Nige­ria gets a waiver from cred­i­tors, in­ter­est pay­ments could eat up 96 per­cent of the Fed­eral Gov­ern­ment’s rev­enue, up from 58 per­cent in 2019.

“If se­cured, mul­ti­lat­eral loans would cover around 21 per­cent of the gen­eral gov­ern­ment deficit in 2020,” Fitch Rat­ings said in a re­port pub­lished Mon­day.

In a re­port last month, the Imf­said­it­be­lieves­nige­ria’sdebt is sus­tain­able and there is ad­e­quate­ca­pac­i­ty­tore­paythe­fund.

“Nige­rian au­thor­i­ties have done well to take the IMF loan, to unify the ex­change rate and to sug­gest that the fuel sub­sidy is gone for­ever,” Re­nais­sance cap­i­tal an­a­lyst Charles Robertson said in a brief­ing last week. “That is an im­prove­ment for Nige­ria” in the medium term, he said.

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