The cost of Nigeria’s rising debt

Nigeria's external debt has been steadily rising, with data from the Debt Management Office showing an increase to 22.08 billion dollars as of June 30 this year from 10.32 billion dollars in June 30, 2015. Egie Akpata, Director of Union Capital Markets, shed light on the implications of the country's growing debt burden in an interview with CNBC Africa. The discussion delved into the allocation of borrowed funds, the effectiveness of the projects being funded, and the sustainability of debt servicing for Nigeria. Akpata highlighted the different sources of external debt, ranging from World Bank and development agency funds to Chinese loans and Euro bonds. While specific infrastructure projects like railways and airport terminals have been cited as outcomes of Chinese loans, the utilization of Euro bonds has primarily been to support the budget due to government deficits. Despite concerns about the rising debt profile, Akpata reassured that debt servicing was manageable, with debt service numbers comparatively low. He emphasized that the debt service costs were not a cause for alarm, as they were well within the government's capacity, evidenced by investors' continued confidence in providing loans to Nigeria. Regarding the direction of borrowed funds, Akpata urged for a shift towards visible and impactful projects that could stimulate economic growth. He raised questions about the effectiveness of borrowing for long-term investments versus short-term budgetary support, emphasizing the need for strategic allocation of funds to key sectors like education and infrastructure. The interview also touched on the administration's approach to borrowing, with a focus on offshore borrowing and its implications for currency devaluation. Akpata acknowledged the government's preference for foreign borrowing due to lower costs compared to local borrowing in the short term, while cautioning about potential challenges in the long term. Looking ahead, Akpata suggested a need for more transparent and accountable use of borrowed funds, with a focus on delivering major projects with visible impact. He underscored the importance of prudent management of debt to ensure sustainable economic growth and development in Nigeria. As Nigeria navigates its rising debt trajectory, the interview shed light on the importance of strategic financial planning, allocation of resources, and effective debt management practices for the country's economic stability and future prospects.