Nigeria’s Debt to GDP Ratio to Hit 23% 2017-2020—S&P

By Dipo Olowookere

Renowned global rating firm, S&P Global Ratings, has predicted that for 2017-2020, Nigeria’s general government debt stock (consolidating debt at the federal, state, and local government levels) will average 23 percent of its Gross Domestic Product (GDP), comparing favourably with peer countries’ ratios.

This information was revealed on Friday by the rating agency when it announced affirming its ‘B/B’ long- and short-term sovereign credit ratings on Nigeria.

According to S&P, “We also anticipate that general government debt, net of liquid assets, will average 17 percent of GDP in 2017-2020.

“We include debt of the Asset Management Corporation of Nigeria (around 5 percent of GDP)–created to resolve the nonperforming loan (NPL) assets of the Nigerian banks–in our calculation of gross and net debt, in line with our treatment of such entities elsewhere,” pointing out that over 80 percent of government debt is denominated in Naira.

The rating firm noted that despite the relatively low government debt stock, general government debt-servicing costs as a percent of revenues are high and have increased in recent years from below 10 percent in 2014 to its projection of 21 percent, on average, in 2017-2020.

Federal Government alone has debt servicing costs of close to 40 percent of revenues, which in the agency’s opinion reduces fiscal flexibility.

It said the steep increases in the ratio are due to a combination of the decline in oil revenues since 2014 and higher borrowing costs in the domestic market.

The government is initiating a process of debt switching: maturing treasury bills–which are costly in the domestic market–will be refinanced by the issuance of Dollar-denominated debt, which is currently cheaper. Through this process, the government hopes to reduce debt servicing costs.

Also, S&P noted that while excess demand for foreign currency still prevails in the Nigerian foreign currency market, it sees encouraging signs of gradually receding pressures thanks to increasing inflows and some initiatives by the Central Bank of Nigeria (CBN) to support this market.

In April 2017, the CBN introduced a new exchange rate window, the Nigerian Autonomous Foreign Exchange Fixing Mechanism–commonly known as the New Investors Foreign Exchange (FX) Window–as a softer option relative to outright devaluation, but nevertheless putting downward pressure on the currency by allowing the US Dollar/Naira exchange rate to move closer to market-determined levels.

The rating firm pointed out that although there are still multiple exchange rates, most FX trading is now predominantly in the interbank market, which trades between $1 to N300 to N320 and the new foreign investors exchange window, which trades $1 to N340 to N370.

“However, Nigeria still maintains FX controls on both current and capital transactions, including import restrictions on 41 categories of goods,” the firm said.

Nigeria ended 2016 with a debt to GDP ratio of 18.6 percent and in May 2017, the International Monetary Fund (IMF) predicted that the country’s debt to GDP ratio will average 24.1 percent by 2018.

Dipo Olowookere is a journalist based in Nigeria that has passion for reporting business news stories. At his leisure time, he watches football and supports 3SC of Ibadan. Mr Olowookere can be reached via

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