Nigeria’s plan to increase its foreign borrowing to reduce debt-servicing costs could raise its exchange-rate risks, according to the International Monetary Fund.
The naira weakened against the dollar following the crash in the price and output of oil, Nigeria’s biggest export, increasing inflationary pressures for a country that imports everything from fuel to food and curbing economic growth. While price growth slowed for eight consecutive months to just under 16 percent in September, it’s been above the upper end of the central bank’s 6 percent to 9 percent target range for more than two years.
With Nigeria’s Eurobonds yielding an average 6 percent, almost 9 percentage points less than pricing for naira bonds, the government expects to reduce its debt-service costs, which the IMF sees almost tripling to about 62 percent of revenue this year. Nigeria is struggling to free up funds to stimulate its economy to grow after it contracted by 1.6 percent in 2016, the first such slump in 25 years.
“We expect that it will help the government extend its maturity profile, decrease debt-servicing costs, and reduce private sector crowding out,” Selassie said.
The Debt Management Office Director-General Patience Oniha said last month she doesn’t see any currency risks given the government’s growth plans that will generate more foreign exchange.
Africa’s biggest producer of crude aims to increase output to 2.5 million barrels a day next year from 1.77 million barrels a day currently. Nigeria is also increasing investment in agriculture to reduce food imports and lessen pressure on its currency, Oniha said.
Source: bloomberg
