How can Nigeria reduce debt-servicing cost?

Nigeria is facing a challenging economic landscape as Moody's predicts that the country's interest spending on debt could rise to 36 per cent of government revenues this year. This comes as the global ratings agency maintains a positive credit outlook for Nigeria. The Debt Management Office has reported that Nigeria's total debt stands at a whopping 121.6 trillion Naira at the end of the first quarter. To delve deeper into these issues, Kayode Akindele, the Managing Director and CEO of Coronation Capital, shared insights in a recent interview on CNBC Africa. A key concern highlighted by Akindele is Nigeria's escalating debt and the associated servicing costs. He pointed out that as the government increases its borrowing, fears mount, particularly with the impact of devaluation and external borrowing on the economy. Akindele noted that government spending on domestic debt in the first quarter alone amounted to almost a trillion Naira, underlining the potential for even higher costs throughout the year. He emphasized that ongoing negotiations around minimum wage hikes could further strain the government's finances, potentially leading to increased borrowing to cover these expenses. With a currently elevated interest rate environment, Akindele expressed concerns about the sustainability of debt servicing costs moving forward. He highlighted the crucial role that increased government revenue, largely dependent on oil, would play in alleviating the pressure on debt payments. Akindele also addressed the issue of inflation in Nigeria, particularly the impact of food prices on overall inflation rates. He suggested that effective management of food inflation could help mitigate broader inflationary risks in the economy, with the hope for a decrease in food prices following the next harvest period. Turning to the government's debt strategy, Akindele underscored the challenges posed by the country's existing economic conditions. He pointed out that the government's borrowing has surged as it attempts to sustain spending levels amid inflationary pressures, ultimately leading to increased debt levels. While the focus has primarily been on domestic borrowing, with potential plans for international borrowing through a Euro bond later in the year, Akindele cautioned that the available funding from domestic markets might not suffice. He stressed the importance of exploring different funding sources, including concessionary loans from institutions like the World Bank, to meet the country's financial needs. Akindele also highlighted the government's efforts to tap into pension funds for infrastructure financing, as part of its broader debt management strategy. However, he warned that achieving debt sustainability would be a complex endeavor, necessitating a delicate balance between revenue generation and borrowing. The conversation then shifted to the role of the banking sector in supporting Nigeria's economic resilience. Akindele addressed the ongoing recapitalization plans mandated by the Central Bank of Nigeria, emphasizing the need for banks to mobilize additional capital to support the country's economic growth. He noted that while larger banks are relatively well-capitalized, the high borrowing rates in the market present challenges for lending and investment activities. Akindele suggested that enhancing financial inclusion and attracting more savings into the banking system could bolster infrastructure funding and economic development. In conclusion, Akindele highlighted the uphill battle facing Nigeria in tackling its debt challenges, managing inflation, and strengthening the banking sector to drive sustainable economic growth. He underscored the need for a concerted effort to boost government revenues, streamline borrowing practices, and foster a conducive environment for financial stability.