Analysts Predict Rise in External Debt
Analysts at FSDH Merchant Bank Limited are anticipating an increase in federal government’s external debt.
They noted this in their latest monthly economic report for July, 2015, stating that there was an imbalance in the current mix between domestic and external debt.
The available data from the Debt Management Office (DMO) showed that Nigeria’s total debt stock (addition of external and domestic debt) as at June 2015 stood at N12.12 trillion, representing an increase of 7.83 per cent from the December 31, 2014 figure of N11.24 trillion. A breakdown of the debt stock showed that external debt accounted for 16.77 per cent of the total debt stock at N2.03 trillion ($10.32 billion at an average exchange rate of $1/ N196.95), while domestic debt stock accounted for 83.23 per cent of the total debt stock at N10.09 trillion ($1/N188.58 billion). The debt-to-GDP for 2014 stood at 12.47 per cent.
To this end, FSDH Research estimated a debt-to-GDP ratio of 12.89 per cent to end year 2015.
“This means that Nigeria’s debt portfolio still has wide fiscal sustainability space; as the debt-to-GDP ratio is below the applicable critical limit of 40 per cent set for the economy by the government. We expect the FGN to increase the external debt as the current mix is lower than the optimal mix of 40 per cent external and 60 per cent domestic,” they added.
The report also showed that a total inflow of about N775.28 billion will hit the money market from the various government maturing securities and Federation Account Allocation Committee (FAAC) in the month of August 2015.
It anticipated outflows from the various sources such as government securities and statutory withdrawals are estimated at N558.41 billion, leading to a net inflow of N216.87 billion.
The analysis, however, does not include the possible CBN’s interventions at the inter-bank segment of the foreign exchange market; and NNPC withdrawals from the system which are difficult to estimate.
“The foreign investors participation is still hinged on their perception of the appropriate equilibrium price of the foreign exchange rate of the naira, and they are expected to hold on to this position, as the CBN continues to use administrative measures to restrict access to the foreign exchange market.
“The expected mop-up activity of probable excess liquidity by the CBN in the month of August 2015 is expected to lead to an increase in yield. This is consistent with the general macroeconomic risk in the country at the moment,” the report added.
Commenting on the uptick in inflation, the report noted that the combination of supply related bottlenecks continued to put an upward pressure on food and other goods and services in the inflation basket. The inflation rate stood at 9.2 per cent in July. There has been continuous accretion to the external reserves since July 2015, till date following the CBN’s policy to restrict some items from access to the official foreign exchange market. The external reserves was boosted by the efforts of the CBN at stemming speculative demand for the naira, as well as putting a lid on the illicit fund flow through the banking system. The curtailment of the acceptance of foreign currency cash deposits by the banks led to the supply of the foreign exchange in the parallel market thus reducing the pressure on the external reserves to a large extent.
“We note that successful efforts of the CBN at conserving the external reserves in July 2015 from further sharp draw downs are temporary measures, and cannot guarantee the long term conservation of the external reserves.