It makes sense for Nigeria to borrow externally, FBNQuest says

Analysts at the investment banking and asset management arm of FBN Holdings Group, FBNQuest, have affirmed that Nigeria tapping the Eurobond market to raise $3.0 billion was in order.

In their Good Morning Note Monday, the analysts said that amid some uninformed commentary on the issue, Nigeria still has room to tap into available concessional loans.

“The point to be made, amid some uninformed comments about the FGN’s return this month to the Eurobond market to raise US$3.0 billion, is that concessional loans are still available,” they noted.

They argued that Nigeria’s debt obligation as at end-September amounted to an equivalent of just 3.9 percent of 2016 gross domestic product (GDP), compared to the external debt stock of Angola, which has also been downgraded by Moody’s to B2, at an estimated 42 percent of GDP in 2016.

“The FGN’s external debt obligations at end-September amounted to $15.35 billion, equivalent to 3.9 percent of 2016 GDP. The increase over Q3 amounted to just $300m, consisting largely of disbursements by the soft loan windows of the World Bank and the African Development Bank, and by the agency française de développement (the French state investment bank),” they pointed out.

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They equally argued that interest and fee payments made on Nigerian external debt in Q3 are annualized, it would amount to an external debt service of 4.3 percent on the basis of mid-2017 stocks.

“To make the same point differently, OAGF data for H1 2017 show domestic and external interest payments by the FGN of N872 billion and N56 billion respectively,” they noted.

They stressed that Nigeria has tapped the Eurobond market again to cover the larger part of its 2017 external borrowing target and that If it is to tackle the structural flaws of the local economy, it has to borrow because transforming its non-oil revenue collection, for now, is at best a medium-term project.

“For reasons, we have indicated and others, it makes sense to borrow externally,” they maintained.