Debt restructuring: An option for Nigeria or not?

Nigeria's debt sustainability has been a topic of concern and debate in recent times, with discussions around debt restructuring surfacing in various circles. Despite the clarification from Nigeria's Debt Management Office that the country is not in talks with the IMF and World Bank over debt restructuring, the conversation surrounding this issue continues to spark interest within the financial community. Egie Akpata, Chairman of Skymark Partners, weighed in on this matter during an interview with CNBC Africa. Akpata emphasized that investors in Nigeria's Naira bonds and US Eurobonds should not be worried as the terms of all bonds will be met, ensuring that both principal and coupon payments will be made as scheduled. He highlighted the importance of differentiating between foreign currency debt and local currency debt, noting that the government effectively controls the Naira market, providing stability in that domain. When discussing Nigeria's fiscal challenges, particularly the high debt-to-service ratio, Akpata pointed out that the country's dollar debt is structured in a way that spreads out maturities, reducing the pressure of significant payments in any given year. While he acknowledged the possibility of restructuring bilateral and multilateral debts, he stressed that private investors in Nigeria should not be overly concerned as they are not the primary lenders in these scenarios. At the core of Nigeria's debt sustainability issues lies a revenue problem, as highlighted by Akpata. The country's tax-to-GDP ratio is among the lowest globally, indicating a need for enhanced domestic revenue mobilization. The issue of oil theft and the significant subsidies allocated to petrol further compound the revenue challenges. Akpata suggested that eliminating petrol subsidies could alleviate a substantial portion of Nigeria's fiscal burden, emphasizing the need to scrutinize both revenue generation and expenditure to achieve financial stability. Looking ahead, the impending removal of oil subsidies in mid-2023, as outlined by the finance minister, presents a critical juncture for Nigeria's economic trajectory. While the elimination of subsidies may not entirely resolve the country's fiscal constraints, it could slow down the growth of its debt stock, which has been fueled by borrowing to cover these subsidies. In the realm of international finance, the Eurobond market has emerged as a significant avenue for African sovereigns to access capital. Akpata noted the increase in yields for African countries' bonds, attributing this trend to global market dynamics. While countries like Ghana and Zambia face challenges with soaring yields indicative of default risk, Nigeria remains relatively stable in this regard, albeit with higher borrowing costs compared to previous years. As Nigeria navigates its debt sustainability challenges, the spotlight remains on effective fiscal management, revenue enhancement, and prudent debt restructuring strategies. The intricacies of the country's debt portfolio, coupled with global economic shifts, underscore the complexities inherent in maintaining financial equilibrium amidst evolving market conditions.