PricewaterhouseCoopers, one of the big four
consulting firms in the world, says a devaluation of
the Nigerian naira will be a key risk to the
sustainability of the country’s foreign debt.
In its recent report, “Nigeria’s refinancing plan: Impact
on debt sustainability is likely to be modest”, PwC said
the new refinancing plan by the federal executive
council is expected to have modest impact on the
nation’s debt sustainability.
“The Federal Executive Council (FEC) recently
approved a plan to issue USD3 billion worth of foreign
bonds of up to three years’ maturity to refinance
maturing nairadenominated treasury bills,” the PwC
report read.
“This decision is in line with the Federal Government’s
(FG) debt management strategy to rebalance its debt
portfolio for domestic and foreign debt, from the
current 69%:31% to a targeted 60%:40%.
“Although this plan is yet to be approved by the
National Assembly, we expect that if implemented, it
would have a modest impact on broad debt
sustainability indicators.”
Commenting on the impact of naira devaluation on
debt sustainability, PwC analyses a few scenarios.
“A devaluation in the currency is a key risk to external
debt sustainability. However, this risk is somewhat
offset by the natural hedge provided by the high
foreign currency composition of government
revenues,” PwC added.
“Under a scenario of an export shock similar to the
episode recorded in 2015, we assume a 44% decline in
exports in 2018. Following this, we estimate external
debt to exports will rise sharply to 71%, up from 27% in
2017.
“While Nigeria’s debt vulnerability worsens under this
scenario, it still remains below the 100% threshold
level – at this level, Nigeria’s external debt would need
to reach USD60.2 billion.”
Foreign investors have been calling on the handlers of
the Nigerian monetary policy to devalue the local
currency to allow for the prevalence of a single
exchange rate system.
TheCable
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