Debt Office clarifies Nigeria has $5.8bn undisbursed foreign loans

Nigeria's Debt Management Office recently disclosed that the country has over $5.8 billion in undisbursed foreign loans that have been approved by the regulator. This revelation comes at a time when Nigeria's overall debt burden has been a topic of concern, with the DMO emphasizing that there is no need for alarm, particularly regarding Chinese loans that are project-tied and concessional. Nnamdi Nwizu, Co-Managing Partner at Commercio Partner, shared insights on Nigeria's debt situation during a recent interview with CNBC Africa. Nwizu highlighted the significant increase in Nigeria's debt burden from 2014 to 2020, nearly tripling from around 11.2 trillion to 32 trillion Naira. The additional 10 trillion Naira recently disclosed by the Central Bank and DMO would push the total debt closer to 40 percent of the debt-to-GDP ratio, raising concerns about debt service to revenue ratio, which stood at roughly 92 percent in the previous year. Nwizu expressed worries about the growing reliance on borrowing to service debt, especially with the rise in interest rates on government bonds. He pointed out that the higher yields are driven by reduced liquidity in the market, making it more challenging for Nigeria to finance its debt. The shift in interest rates from historically low levels to current highs indicates a possible debt trap scenario where servicing loans becomes the primary focus of the budget. Despite the emphasis on the importance of local debt management, Nwizu cautioned that Nigeria may be heading towards a situation where debt servicing overwhelms other budget priorities. The $5.8 billion in undisbursed foreign loans could serve as a buffer for Nigeria's fiscal challenges if utilized strategically, according to Nwizu. He suggested that the funds should be channeled towards infrastructure projects that can drive GDP growth and benefit the economy at large. Nwizu recommended investments in sectors such as transportation, manufacturing, and agriculture, emphasizing the need for well-costed projects that generate sufficient revenue to repay the loans in the future. Looking ahead, Nwizu shared his projections for the fixed income markets, anticipating increased volatility as Nigeria approaches its next bond auction. He predicted that interest rates would continue to rise, with long-term bonds crossing the 12 percent mark and short-term rates hovering around 11.5 percent. Overall, Nwizu's insights shed light on Nigeria's debt challenges and the importance of prudent financial management in navigating the country's economic landscape.