Nigeria’s debt service set to exceed 25 pct of revenue

With $49 billion in domestic debt and $10.8 billion in external debts, Nigeria is now committing 23 percent of fiscal revenue to debt service, which is set to exceed the 25 percent benchmark by year end. The lack of a face in the new Nigerian President Muhammadu Buhari’s government to talk up the economy and calm investors is the main source of concern.
“The alignment of fiscal and monetary policy which the economy benefitted from over the last five years seems to have been lost in the last two months,” said Adetilewa Adebajo, economist and CEO of CFG Advisory.
“This misalignment of fiscal and monetary policy has started to impact macroeconomic indicators,” Adebajo said.
Nigeria’s Inflation recently hit a six-month high of 9.2 percent in June, while the unemployment rate climbed to a high of 7.5 percent in the first quarter of 2015, according to data from the National Bureau of Statistics (NBS).
The absence of fiscal input meant the Central Bank of Nigeria (CBN) was in the forefront of the recent restructuring of the state government bank loans into treasury bonds, which has increased the domestic debt profile by up to N1 trillion.
Investors worried about the lack of policy direction have sold Nigerian assets, with the market capitalisation of the benchmark stock index down N893 billion in the first seven months of the year.
“There is heightened uncertainty as investors grope in the dark,” Bismarck Rewane, CEO of consulting firm, Financial Derivatives, said in a recent presentation.
“The market performance will remain subdued in the absence of a firm policy direction. Key appointments will serve as the much desired catalyst for a market rally.”
Nigeria’s currency, the naira, has fluctuated widely in the parallel or black market as the CBN attempts to clamp down on speculators.
“One of the main reasons there is currency turmoil in the forex market is that there is no finance minister to assure and calm the markets,” said Olu Fasan, economist and fellow at the London School of Economics.
Efforts to diversify the country’s earnings away from oil, which include boosting non- oil taxes have yet to take off, as inertia remains on the fiscal side.
Non oil taxes collected by the Nigerian Federal government were worse than Emerging Market peers and equivalent to only 3.9 percent of GDP or N3.5 trillion in the 12 months to April 2015, according to data from FBN Capital.
Investors are also concerned about the prospects of Nigeria being ejected from the JP Morgan Emerging Markets bond index, which may happen by year end.
The onset of a rate tightening cycle in the USA and the market volatility it may entail in the second half of the year also co-incide with the Nigerian Federal budget cycle, and the presence of a Finance Minister would enable the country to start planning ahead of the curve, analysts say.

CULLED FROM BUSINESSDAY