Nigeria’s debt service ratio falls to 45%

‘New deals, VAIDS to promote sustainability’

The nation’s debt-service-to-revenue ratio has recorded a new decline from about 66 per cent to 45 per cent, courtesy of the improving revenue mobilisation from both domestic and foreign sources.

The decline will now see to the deployment of more funds to the areas of development needs, while work is ongoing to tame high cost of short term domestic debts, which is the major source of high debt service.

The Minister of Finance, Mrs. Kemi Adeosun, who admitted in an e-mail response to questions to The Guardian, that the achieved 45 per cent debt-service-to-revenue ratio is still too high, but not like when it is above 60 per cent, assured of continued improvement from now onward as revenue initiatives begin to deliver more.

She said that the country’s new debt strategy is focused on delivering the capital needed for infrastructure investment, as diversification agenda and essential investments in delivering an enabling environment for business and the population are duties that can no longer be abdicated.

Ruing the country’s low tax to Gross Domestic Product (GDP) at six per cent in comparison with other nations, she said the unsustainable trend would soon be reversed as the Voluntary Assets and Investment Declaration Scheme (VAIDS) gets full activation.

“Our tax amnesty (VAIDS) is delivering strong results and will establish the basis for a much more sustainable revenue base going forwards,” she said.She noted that Nigeria is already establishing a strong position in international capital market, with regular issuances that have been very well received by the international investor base.

According to the minister, the country’s debt portfolio is being rebalanced to spread its exposure to achieve a more efficient balance between domestic and international debt and reduce the overall cost of borrowing.

“By successfully extending the tenure of our international debt portfolio to 30 years, we are establishing the long term financing that is essential for infrastructure development.“It takes time to make fundamental changes to our economic model. Achieving a full reset will take even longer, but we are seeing strong, green shoots of success. Establishing long term funding will enable us to build the infrastructure that we, and our children, will benefit from for the next 50 years,” she said.

Adeosun explained that over the last five years, Nigeria has been overly focused on domestic debt, which is short term and high cost and making the country not only pay too much, but regularly refinance existing debt rather than having the security of longer term instruments.

“Having returned the economy to growth in 2017 and secured a stable and liquid exchange rate regime, we are focused on addressing this issue by diversifying our sources of debt to achieve an optimal balance.

“So far, we have moved our domestic/international debt ratio from 18:82 to 23:77 and we expect this to improve to 27:73 by year end, with an ultimate target of 40:60. This will deliver significant savings in our debt service costs, with provisional estimates demonstrating savings of up to N91 billion in 2018 alone,” the minister said.

She assured that the proceeds of the $3billion Eurobond split between 2017 budget capital projects ($2.5 billion) and re-financing some of our short term domestic debt ($500 million), will be fully implemented on road, rail, power and housing projects which are crucial to the delivery of the economic recovery and growth plan.

“Our intention for this issuance was to meet our short term requirement to fund $2.5 billion for the 2017 budget. Following significant investor interest of over US$11 billion, we brought forward a further $500 million of funding towards the refinancing of existing domestic debt.

“We will assess options for concluding the refinancing process in the New Year. Restricting this issuance to $3 billion also enabled us to optimise the price of the notes, which at 6.5 per cent (10-year) and 7.625 per cent (30-year) are significant improvements to our existing portfolio,” she added.