By Jeph Ajobaju, Chief Copy Editor
Nigeria is in the top 10 countries with high debt risk exposure, says the World Bank, repeating the warning two months ago by the African Development Bank (AfDB).
Data from the Debt Management Office (DMO) shows Nigeria’s total loans increased from $86.39 billion (Q4 2020) to $87.24 billion in the first quarter of 2021 (Q1 2021), an additional $847 million loan in three months.
Debt rose by N20.8 trillion to N32.92 trillion between July 2015 and December 2020, and to N33.11 trillion in Q1 2021, according to the DMO.
Servicing the debt cost N1.8 trillion between January and May while N973.13 billion was spent on capital expenditure and N1.84 trillion was earned in revenue.
The warning about debt risk is contained in the financial statement of the International Development Association (IDA) which is among the World Bank financial year 2021 (FY21) audited financial statements, per The PUNCH.
“IDA faces two types of credit risk: country credit risk and counterparty credit risk,” the statement said.
“Country credit risk is the risk of loss due to a country not meeting its contractual obligations; and counterparty credit risk is the risk of loss attributable to a counterparty not honoring its contractual obligations.
“IDA is exposed to commercial as well as noncommercial counterparty credit risk. As of June 30, 2021, the 10 countries with the highest exposures accounted for 66 per cent of IDA’s total exposure.”
In descending order, the 10 IDA debtor countries are
· India – $22 billion
· Bangladesh – $18.1 billion
· Pakistan – $16.4 billion
· Vietnam – $14.1 billion
· Nigeria – $11.7 billion
· Ethiopia – $11.2 billion
· Kenya – $10.2 billion
· Tanzania – $8.3 billion
· Ghana – $5.6 billion
· Uganda – $4.4 billion
Loans from IDA, IBRD
The World Bank said there is a Single Borrower Limit for IDA, which for FY22 is set at $45 billion (25 per cent of $180.9 billion of equity as of June 30, 2021).
According to the statement, Nigeria’s undisbursed balance with the World Bank is about $8.656 billion as of June 30, 2021.
In the International Bank for Reconstruction and Development (IBRD), part of the World Bank Group, Nigeria has a total $589 million undisbursed balance, comprising $500 million loans approved but not yet signed and $89 million signed loan commitment.
In the IDA, Nigeria has a total undisbursed balance of $8.07 billion, made up of $1.462 billion loans approved but not yet signed and $6.61 billion signed loan commitment.
The financial statement for the IBRD disclosed that although a certain amount of loans has been agreed “the loans are not effective and disbursements do not start until the borrowers and/or guarantors take certain actions and furnish documents.”
A total $1 billion loans were agreed between Nigeria and the IBRD, of which $411 million is outstanding.
A total $19.54 billion loans were agreed between Nigeria and the IDA, of which $11.47 is outstanding.
DMO data shows that as of Q1 2021 Nigeria owes the World Bank $11.51 billion, consisting of $11.10 (IDA) and $410.23 million (IBRD).
Other financial statements released included those for International Finance Corporation (IFC) and Multilateral Investment Guarantee Agency (MIGA).
World Bank Group commitments rose to $84.3 billion in FY21, a 15 per cent increase on FY20.
“The World Bank Group support to client countries surged to $157bn over the last 15 months to address increased poverty, inequality, and the impacts of COVID-19,” explained World Bank Group President David Malpass.
He said the unprecedented level of commitments helped countries strengthen health systems, protect the poor and vulnerable, support jobs and businesses, promote economic growth, and lay the foundation for a green, resilient and inclusive recovery.
Rising debt, declining economic output
Nigeria, Kenya, Cote d’Ivoire and other African countries had raised more than $17 billion from bond issuances by early 2019, according to the World Bank.
These countries must pay back the debts, even as most loans are wasted or stolen outright.
AfDB has expressed concern that Nigeria and other African countries run the risk of defaulting on loan repayments such that things will get worse.
AfDB disclosed in its Strategy for Economic Governance in Africa document that the risk of debt defaults is increasing among African countries due to decline in economic output compounded by measures to curtail coronavirus.
“Declining economic output as a result of containment measures against COVID-19 and policy measures to stimulate the economies have heightened debt vulnerabilities,” AfDB said, per Nairametrics.
“Public debt now exceeds 50 per cent of GDP in nearly half of its regional member countries. Over the last decade, Africa increased its debt at a faster rate than any other region.
“The risk of defaults on debt, much of which is now non-concessional, has increased. At least 24 African countries have applied for the Paris Club–led Debt Service Suspension Initiative, which would free up resources to fight the pandemic.”
AfDB urged African countries to develop capacity for effective debt management and strengthen growth, financing instruments, and effective governance, which are highly beneficial towards avoiding a debt crisis.
“Building the capacity for debt management becomes important, but there is also a need to revamp the nexus between growth, financing instruments, and effective governance.
“Doing so would ensure that reforms adopted in the context of debt suspension or restructuring are properly timed and tailored towards giving credibility back to governments on their policy actions.
“In other words, the fiscal space that ensues from debt suspension can be put to use towards public investment in strategic sectors and growth-enhancing governance reforms through fiscal consolidation are critical in this context.
“The level of debt in Africa has soared, rising from 38 per cent of GDP in 2011 to 61 per cent in 2019.”
Negative credit outlook
Only six African countries were considered at high risk of or in debt distress in 2013, according to the IMF, quoted by Nairametrics.
In June 2020, the figure reached 20, and it is likely to increase as a result of fiscal pressures heightened by the pandemic.
The IMF said the composition of debt in Africa has changed from less concessional debt to higher non-concessional borrowing, with more options of debt financing, which increased debt stock and may lead to a negative credit outlook.
The contribution of commercial creditors to Africa’s total external debt rose from 17 per cent in 2000 to 40 per cent in 2019.
Eurobond issuance in Africa soared between 2008 and 2018. Although the change indicated growing investor confidence in debt securities issued by RMCs, it also increased the debt burden, according to the IMF.
