Understanding Nigeria's debt management strategy

Nigeria's National Assembly recently approved the federal government's Medium-Term Expenditure Framework and Fiscal Strategy Paper, as well as President Muhammadu Buhari's 2.3 trillion naira borrowing plan. This move raised discussions about the country's loan strategy. Egie Akpata, Director of Union Capital Markets, joined CNBC Africa to delve into Nigeria's borrowing plan. The approval by lawmakers of President Buhari's loan plan, totaling 2.3 trillion naira for one year, has led to discussions about tying the loans to specific projects. Lawmakers are insisting on this linkage, but Akpata noted that the majority of the budget is currently funded by debt, with a significant portion being directed towards recurrent spending. While the foreign borrowing aspect may have more links to specific projects, the domestic borrowing does not have a direct tie to any particular initiative. The focus now is on capital projects, with 30% of the budget allocated to this area. However, the exact connection between borrowing and projects still needs clarity. Akpata discussed Nigeria's discussion with the World Bank for a loan that might require reform plans. He highlighted the importance of managing exchange rates and deficits, as well as the impact of borrowing costs on total revenues. The conversation also touched on the official exchange rate and the challenge of revenue projections from non-oil sectors. Akpata mentioned the need for realistic targets considering the country's historical dependence on oil revenues. In terms of performance, the discussion turned to budget implementation from the previous year and the prospects for better execution in the current year based on high oil price projections. The synergy between monetary and fiscal authorities was also stressed, with a focus on interest rates and borrowing costs. The challenges of foreign borrowing and exchange rate fluctuations were highlighted, emphasizing the need for a comprehensive strategy. Despite hopes for a more synchronized approach between monetary and fiscal policies, concerns remain about high borrowing costs and the impact on debt repayment in foreign currency. Addressing the need to reduce reliance on domestic borrowing and manage foreign debt amid currency devaluations is essential for Nigeria's debt management strategy. As the country navigates its borrowing plans and budget projections, the coordination between monetary and fiscal authorities will play a crucial role in shaping Nigeria's economic landscape.