The World Bank has expressed concerns about Nigeria’s rising debt servicing costs in relations to the government’s dwindling revenue.
It stated this in its newly released Global Economic Prospects report, where it also observed that the country’s economic recovery was being limited by foreign exchange controls.
Noting that debt servicing costs had risen but remained sustainable for most countries, it said the rise in government’s debt, exchange rate depreciation, and increased recourse to non-concessional borrowing for infrastructure development had resulted in rising debt servicing costs.
The report said, “However, for most countries in the region, the interest-to-revenue ratio remains sustainable, helped by the high share of concessional borrowing. A notable exception is Nigeria, where the Federal Government’s interest-to-revenue ratio rose from 33 per cent in 2015 to 59 per cent in 2016.
“As monetary policies in advanced economies continue to normalise, and global interest rates increase, proactive public debt management will be needed to manage rollover risks in the region.”
The World Bank, which noted that militants’ attacks on oil pipelines in the country had decreased, said, “The economic recession in Nigeria is receding. In the first quarter of 2017, the GDP fell by 0.5 per cent (year-on-year), compared with a 1.7 per cent contraction in the fourth quarter of 2016.”
Last year, Nigeria suffered its first economic contraction in 25 years as a result of a drop in oil exports amid low prices and foreign-currency shortages that raised inflation to a record high.
The World Bank report said the Purchasing Managers’ Index for manufacturers returned to expansionary territory in April, indicating growth in the sector after contraction in the first quarter.
“Several factors are preventing a more vigorous recovery. In Angola and Nigeria, foreign exchange controls are distorting the foreign exchange market, thereby constraining activity in the non-oil sector,” it stated.
It noted that oil exports were rebounding in Nigeria on the back of an uptick in oil production from fields previously damaged by militants’ attacks.
The report said capital inflows in the sub-Sahara African region were rebounding from their low level in 2016, adding that Nigeria tapped the Eurobond market twice in the first quarter of 2017, followed by Senegal in May.
“Regional inflation is gradually decelerating from its high level in 2016. Although a process of disinflation has started in Angola and Nigeria, inflation in both countries remains elevated, owing to a highly depreciated parallel market exchange rate,” the World Bank said.
According to the report, the regional outlook is subject to significant external risks, to which Nigeria is exposed.
It said, “A sharp increase in global interest rates could discourage sovereign bond issuance, which has become a key financing strategy for governments in recent years, as they have increasingly looked to global markets for the funds to finance domestic investment.
“On the domestic front, in countries where significant fiscal adjustments are needed, failure to implement appropriate policies could weaken macroeconomic stability and slow the recovery. This risk is particularly significant for Angola, CEMAC (Central African Economic and Monetary Community) countries, Mozambique and Nigeria.”
Growth in sub-Saharan Africa was projected to recover to 2.6 per cent in 2017 from the sharp deceleration to 1.3 per cent in 2016, and to strengthen somewhat in 2018.
The World Bank said the upturn reflected recovering global commodity prices and improvements in domestic conditions, adding that the rebound would mostly come from Angola and Nigeria—the largest oil exporters.
“However, investment is expected to recover only very gradually, reflecting still tight foreign exchange liquidity conditions in oil exporters and low investor confidence in South Africa,” it added.