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Tuesday, March 28, 2023

Nigerian Leaders Pile Debt on Younger Generations as Protests Escalate

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Nigerian government is piling huge debt on a younger generation who are protesting against police brutality, extrajudicial killings and bad governance in a country where the vast majority of a population of 200 million wallow in abject poverty.

The future is bleak for the Nigerian youths because their future has been largely mortgaged to international financial institutions over money owed to them by their parents.

Last, the Nigerian Senate approved a plan to borrow as much as $11 billion (N4.28 trillion) to help fund a budget deficit.

That will bring the country’s total debt stock (Foreign & Domestic) to $96.9 billion (N37.69 trillion), which is 21 percent of gross domestic product (GDP) using an exchange rate of N389/$.

Currently the country’s debt stock stands at N31.01 trillion at June 2020 ($85.9 billion), a 8.31 percent increase when compared with N28.63 trillion ($79.3 billion) recorded in March 2020, according to data from the Debt Management Office or DMO.

While Nigeria has a manageably low debt to GDP ratio and lower interest rates, its deteriorating revenue casts a pall over its ability to meet its future obligations.

The price of oil – which accounts for over 90 percent of foreign exchange earnings and two thirds of government revenue – has crashed on the back of the coronavirus pandemic that dealt a blow on demand.

As manufacturers are poised to roll out mass produced electric cars that could make crude oil worthless over the next decade, Nigeria could be bankrupt and default on the loans.

Already, there is not enough ammunition in the entire arsenal as debt service is projected to take N3.12 trillion, in 2020 slightly less than the N3.28 trillion planned for infrastructure development.

The country’s debt sustainability is in doubt as debt service-to-revenue ratio, which has in recent years risen to worrying levels, is now at 99 percent as at the first quarter (Q1 2020).

Perhaps more worrisome is that the government is not dexterous enough to diversify the economy away from reliance on oil, and lack of reformation policies have continued to undermine foreign direct investment (FDI).

The young generations are becoming impatient with their leaders, but they have to pay attention to the government’s borrowing binge as most African countries are at the verge of default.

Nigeria has an outstanding Eurobond of $11.20 billion according to data gathered by United Capital Research Limited.

Data gathered by the research house shows eight African countries have a combined $99.40 billion.

There is looming debt crisis as a lot of African borrowers are at the brink of record default, as the fall in global commodities crash and Covid-19 crisis have exposed the continent to spiraling debt service cost

Consequently, bondholders are demanding more transparency from borrowers.

Zambia has appealed to bondholders to accept an interest rate payment holiday to give it lee way to restructuring strategy.

In 2012, the South African nation issued $700 million Eurobond with a coupon of 5.60 percent, and it has a total debt of $12 billion as it ignores warnings from the International Monetary Fund (IMF) of growing debt distress risk.

Eurobond holders have raised concerns over the transparency of Zambia’s loans from Chinese banks, and the countries concession of airports, seaports, and other national assets as collateral for such loans.

There is also the issue of corruption among African lenders who use the loans to fund elections and siphon part of it to foreign banks.

Chad has asked the world’s largest commodities trader, Glencore Plc, and other private creditors to delay debt payments.

Kenya said it’s at risk of debt distress as external borrowing costs rise faster than foreign revenue.

“Even though Angola has negotiated $6.0bn in debt relief with some of its lenders and promised to fulfill its debt obligations, the country remains at a high risk of default on its 5 outstanding Eurobonds, especially if crude oil prices fall further,” said analysts at United Capital Limited.

“While we expect these Sub-Sahara African sovereigns to ultimately service their obligations, the Zambia and potentially, the Angolan, default worries may worsen the credit risk premium for SSA issuers in the international capital market,” said analysts at United Capital.

South Africa’s Finance Minister Tito Mboweni said he plans to arrest the increase in debt levels at 87 percent of gross domestic product (GDP) in the 23-24 financial year, falling to 74 percent in 2028-29.

Mobewa said without a stimulus package the ratio could climb to 141 percent over the next decade, as the pandemic could result in the country’s biggest economic contraction in almost a decade.

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