World Bank cautions Nigeria, others against Eurobonds

The World Bank
The World Bank

The World Bank on Wednesday warned Nigeria that Eurobonds and other private sector market or sovereign debt instruments can worsen its debt-to-gross domestic product (GDP) ratio.

Although the bank noted Nigeria is the only low income commodity producing economy that has maintained public debt below 20 per cent of GDP since 2016, it said the federal government needs to ensure it borrows responsibly and focus on prioritising expenditures on investments.

Following the latest rounds of Eurobond issues since January 2017, the Debt Management Office (DMO) said Nigeria’s debt stock shot up to about N21.7 trillion, or $71 billion.

Prior to the coming of President Muhammadu Buhari administration in May 2015, the figure was about N12.06 trillion, the current figure representing an over 80 per cent jump.

But at the launch of its 17th edition of “Africa’s Pulse”, a publication on Africa’s economic future analysis in Washington DC, the World Bank said the challenge of high debt countries in Africa was one of its key findings.

PREMIUM TIMES was among a select media group that participated in the live video conference monitored from Abuja. The event was addressed by World Bank’s Chief Economist Africa, Albert Zeufack; and Research Manager, Michael Toman.

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The report said high debt distressed countries in Africa grew from eight in 2013 to about 18 by March 2018, attributing this to the significant change in their debt structures.

It said sub-Saharan Africa economy rebounded, with a projected growth at 3.1 per cent in 2018 and about 3.6 per cent between 2019 and 2020.

Although the report said the projected growth was not as fast as expected, Mr Zeufack said it was the first positive increase since the 1.5 per cent rate recorded in 2016.

He said the performance of the economy underscored the need for government to speed up macro-economic reforms, continue fiscal adjustments and deepen structural and regulatory reforms to attract more investments to sustain the growth rate.

He said the negative impact of rising debts and the need to pay more attention to the issue, which has now exposed African countries to additional risks to fiscal sustainability and development.

Mr Zeufack said most countries preferred Eurobonds and other market and private sector sovereign debt instruments issue over the traditional concessional loans despite the market related risks and threats to debt sustainability.

“It is no longer concessional debts that most governments go for. A lot of the countries have been accessing more market-based, non-traditional sources of financing. This raises the risks countries face going to markets to refinance their debts. Apart from accumulating more private debts, it increases their domestic debt stocks,” he said.

Although the World Bank economist noted the size of Nigeria’s debt relative to the size of its economy was moderate, he said the interest payment on document debts against the share of government revenues at the current rate was not sustainable.

With debt-to-GDP growth rate ratios increasing to more than 30 per cent, with some as high as more than double that figure within the period, Mr Zeufack stressed the need for countries to manage their debt risks, particularly those resulting from issuance of Eurobonds and borrowing from capital markets.

“There must be a focus on fiscal adjustments and consolidation of exchange rates as well as prioritization of expenditure on investments. While countries keep the pace of investments, they must borrow responsibly,” he said.

Defending the role of the World Bank in growing the debt profile of most African countries, Mr Zeufack said the bank was working with countries to ensure concessional loans remained the first source of funding that could be leveraged to attract more private investments to bring sustainable development.

Since end of 2016, Mr Zeufack said public debt in the region increased significantly from 37 to 56 per cent of GDP on average, relative to GDP, with more than two-thirds of the countries rising by more than 10 percentage points.

The Lead Economist Africa, Punam Chuhan-Pole, who also spoke during the event, said debt was not all bad, so far as they were used in financing investments in critical infrastructures to the benefit of the people.

“The spending from loans by countries must be prioritised and focused on efficiency, particularly when there is commodity price pressure affecting fiscal performance,” Mrs Chuhan-Pole said.

She identified the main drivers of the increase in public debts as rising fiscal deficits, depreciation of exchange rates, especially in commodity exporting countries and the slowdown in economic growth relative to GDP.

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