African countries have been on a debt binge lately, with at least 4 African countries tapping the Eurobond market. It sounds like Déjà vu as we have been down this road before. It was less than 15 year ago that Nigeria paid $18bn to achieve debt forgiveness of $38bn under the Heavily Indebted Poor Countries (HIPC) initiative.
Today, the total debt stock is not as much a problem as the debt service to revenue ratio. The Federal Government according to the IMF is now using 70% of its independent revenue for debt service. This is eating up scarce resources that would otherwise have been used for investment in infrastructure. Nigeria’s public debt level as at December 2017 stood at $70.99bn, a 25% increase compared to $57.39bn in the previous year.
The other undesirable consequence of high debt is that Government borrowing in the T-bill market is crowding out private sector credit growth (+1.7%). The recent decline in T-bill rates by 83bps in both the secondary and primary markets is beginning to improve liquidity in the interbank market and reduce rates. This is good news for SMEs and corporate borrowers.
In this edition of the FDC Bi-monthly publication, the FDC Think-Tank analyzes these issues and their implications on businesses, investments and your portfolio.
Enjoy your read.