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World Bank cautions Nigeria, others against Eurobonds

The World Bank on Wednesday warned Nigeria that Eurobonds
and other private sector market or sovereign debt instruments can worsen its
debt-to-gross domestic product (GDP) ratio.
Although the bank noted Nigeria is the only low income
commodity producing economy that has maintained public debt below 20 per cent
of GDP since 2016, it said the federal government needs to ensure it borrows
responsibly and focus on prioritising expenditures on investments.
Following the latest rounds of Eurobond issues since
January 2017, the Debt Management Office (DMO) said Nigeria’s debt stock shot
up to about N21.7 trillion, or $71 billion.
Prior to the coming of President Muhammadu Buhari
administration in May 2015, the figure was about N12.06 trillion, the current
figure representing an over 80 per cent jump.
But at the launch of its 17th edition of “Africa’s
Pulse”, a publication on Africa’s economic future analysis in Washington DC,
the World Bank said the challenge of high debt countries in Africa was one of
its key findings.
The report said high debt distressed countries in Africa
grew from eight in 2013 to about 18 by March 2018, attributing this to the
significant change in their debt structures.
It said sub-Saharan Africa economy rebounded, with a
projected growth at 3.1 per cent in 2018 and about 3.6 per cent between 2019
and 2020.
Although the report said the projected growth was not as
fast as expected, Mr Zeufack said it was the first positive increase since the
1.5 per cent rate recorded in 2016.
He said the performance of the economy underscored the
need for government to speed up macro-economic reforms, continue fiscal
adjustments and deepen structural and regulatory reforms to attract more
investments to sustain the growth rate.
He said the negative impact of rising debts and the need
to pay more attention to the issue, which has now exposed African countries to
additional risks to fiscal sustainability and development.
Mr Zeufack said most countries preferred Eurobonds and
other market and private sector sovereign debt instruments issue over the
traditional concessional loans despite the market related risks and threats to
debt sustainability.
“It is no longer concessional debts that most governments
go for. A lot of the countries have been accessing more market-based,
non-traditional sources of financing. This raises the risks countries face
going to markets to refinance their debts. Apart from accumulating more private
debts, it increases their domestic debt stocks,” he said.
Although the World Bank economist noted the size of
Nigeria’s debt relative to the size of its economy was moderate, he said the
interest payment on document debts against the share of government revenues at
the current rate was not sustainable.
With debt-to-GDP growth rate ratios increasing to more
than 30 per cent, with some as high as more than double that figure within the
period, Mr Zeufack stressed the need for countries to manage their debt risks,
particularly those resulting from issuance of Eurobonds and borrowing from
capital markets.
“There must be a focus on fiscal adjustments and
consolidation of exchange rates as well as prioritization of expenditure on
investments. While countries keep the pace of investments, they must borrow responsibly,”
he said.
Defending the role of the World Bank in growing the debt
profile of most African countries, Mr Zeufack said the bank was working with
countries to ensure concessional loans remained the first source of funding
that could be leveraged to attract more private investments to bring
sustainable development.
Since end of 2016, Mr Zeufack said public debt in the
region increased significantly from 37 to 56 per cent of GDP on average,
relative to GDP, with more than two-thirds of the countries rising by more than
10 percentage points.
The Lead Economist Africa, Punam Chuhan-Pole, who also
spoke during the event, said debt was not all bad, so far as they were used in
financing investments in critical infrastructures to the benefit of the people.
“The spending from loans by countries must be prioritised
and focused on efficiency, particularly when there is commodity price pressure
affecting fiscal performance,” Mrs Chuhan-Pole said.
She identified the main drivers of the increase in public
debts as rising fiscal deficits, depreciation of exchange rates, especially in
commodity exporting countries and the slowdown in economic growth relative to
GDP.
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