Multinational professional services company, Price Waterhouse Coopers (PWC) has said despite the rising debt portfolio of the country, the probability of Nigeria falling into debt distress is low.
This is even as it called on government to step up efforts at increasing non-oil revenue.
PWC said given the outlook for lower for longer oil revenues, it expected government to do more in mobilising non-oil revenues to bridge the ﬁscal deﬁcit, to meet the objective of reducing the “crowding out” impact of domestic borrowing.
“There is room for tax mobilisation as Nigeria’s non-oil tax to GDP at 2.3 per cent in 2016 remains well below the average of 16 per cent among Sub-Saharan Africa countries.
Similarly, the policy framework for investment incentives should be periodically assessed against intended policy objectives and revenue forgone.
This would ensure that the investment incentive framework is targeted, cost effective and sustainable.”
PWC, while noting in a report that growing concerns over debt sustainability in the country are over done said “our analysis of key debt sustainability indicators suggest that the probability of debt distress at this time is low.”
“We estimate that Nigeria’s external debt to exports could rise by seven percentage points to 34 per cent in 2018. This is however well below the threshold of 100 per cent prescribed by the IMF, and the peak of 104 per cent recorded during Nigeria’s debt crisis in 2004.
“Under a scenario of an export shock similar to the episode recorded in 2015, we assume a 44 per cent decline in exports in 2018. Following this, we estimate external debt to exports will rise sharply to 71 per cent, up from 27 per cent in 2017.
“While Nigeria’s debt vulnerability worsens under this scenario, it still remains below the 100 per cent threshold level – at this level, Nigeria’s external debt would need to reach $60.2 billion.
“While Nigeria’s near term public debt ratios remain relatively comfortable, we are mindful of the trend in debt service ratios. We estimate that debt service to revenue ratio is likely to remain elevated at 50 per cent in 2018, breaching the recommended threshold of 25 per cent. This represents the fourth consecutive increase since 2015” PWC noted.
The report estimated that Nigeria’s stock of treasury bills would be around N3.8 trillion by end of 2017, adding that reﬁnancing $3 billion worth of maturing bills with dollar borrowing would result in a reduction in this stock by as much as nine per cent.
“External debt on the other hand would increase by 46 per cent to N6.3 1trillion by end of 2018. Under this scenario, debt to GDP rises by three percentage points, from an estimated 16 per cent in 2017 to 19 per cent in 2018.
“Nonetheless, the impact on the cost of debt is likely to be muted. The Debt Management Ofﬁce (DMO) reports the weighted-average interest rate on debt which takes into account the proportion of instruments issued.
“Treasury bills account for 16 per cent of total FG debt, and the portion to be reﬁnanced is about one-quarter of treasury bill maturities in 2018. Thus, we estimate the weighted average interest rate could increase to 13 per cent, in 2018 from an estimated 12 per cent in 2017 and 11 per cent in 2015.”
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