Nigeria’s revised budget for 2020 is nearing a final hurdle of approval, but the deficit will probably exceed the government’s expectations. And despite the recent rise in oil prices and easing external financing constraints, the authorities may still need to turn to some form of debt restructuring to reduce strains in the public finances. Elsewhere in the region, momentum is growing to take part in bilateral debt relief efforts
Fiscal (un)realities in Nigeria
Nigeria’s revised budget for 2020 is one step closer to approval, but we suspect that the deficit will be higher than the government estimates.
Both chambers of the parliament passed the revised budget blueprint this week, bumping up spending to N10.8trn from the cabinet’s proposal of N10.5trn. Projections about government revenues and the budget deficit are unclear and President Buhari’s final seal of approval is still needed. Based on previous revenue estimates, it looks like the budget implies a deficit of around N5.7trn (3.5% of GDP).
The outlook for Nigeria’s public finances has improved recently. Oil prices have recovered and external financing constraints have eased; the spread of Nigerian sovereign dollar bonds (based on the EMBI index) has fallen from over 1000bp in March to 766bp. Even so, we don’t think that Nigeria is out of the woods. Assumptions underpinning the budget look rosy. Projected oil production of 1.8mn bpd is much higher than the latest OPEC quotas (1.4mn bpd over May-July, and 1.5mn bpd for the rest of the year) call for. The authorities have committed to compensating for overproduction in May.
By and large, the budget deficit including state and local governments, is likely to be closer to 7% of GDP. The IMF, whose budget deficit forecast is similar to ours, estimated back in April that the country would face a fiscal financing gap of N3trn, even, with budget support from the Fund.
And while sovereign bond yields have declined along with spreads, we suspect that tapping capital markets to plug the budget gap is still just a distant possibility. EM governments generally issue sovereign bonds with a coupon rate at 8% or lower. (See Chart 1.) The yield on the Nigeria EMBI Index, of 8.3%, remains uncomfortably high. The risk of the authorities resorting to debt restructuring to ease strains in the public finances remains high.
Chart 1: EM International Sovereign Dollar Bond Issurance (2010-19) |
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Sources: Refinitiv, Capital Economics |
Growing debt relief momentum
Sovereign bond yields have come down elsewhere in Sub-Saharan Africa too. But this hasn’t made governments think twice about seeking bilateral debt relief. Instead, momentum towards initiatives by the G20 and the Paris Club seems to be growing.
Ethiopia and Tanzania were the latest to announce that they would participate in debt relief efforts this week. Tanzania started negotiations to suspend debt payments due this year on bilateral loans from G20 countries, while Paris Club creditors agreed to Ethiopia’s debt moratorium request on similar terms.
The main difference is the make-up of the two lender groups. China is only part of the G20 grouping, but as the region’s largest lender, its position is key. So far, Beijing’s approach to negotiations has been pretty ambiguous. Even so, the increasing number of countries taking up debt relief deals demonstrates growing appetite despite criticisms that terms are restrictive and as borrowing costs on international capital markets become less prohibitive.
The week ahead
Figures due out on Monday will probably show that inflation in Nigeria rose from 12.3% y/y in April to 12.6% y/y in May. And March retail sales data from South Africa will give us a better sense of how the economy shaped up in Q1.
Economic Diary & Forecasts
Date | Country | Release/Indicator/Event | Time (BST) | Previous* | Median* | CE Forecasts* | |
15th Jun |  | Nga | CPI (May) | – | (+12.3%) | – | (+12.6%) |
 | Bot | CPI (May) | – | (+2.5%) | – | (+2.8%) | |
17th Jun |  | Nam | Interest Rate Announcement | – | 4.25% | – | 3.75% |
 | Gha | GDP (Q1) | – | (+7.9%) | – | (+3.0%) | |
| Gha | CPI (May) | – | (+10.6%) | – | (+8.6%) | |
 | Moz | Interest Rate Announcement | – | 14.25% | – | 14.25% | |
| Nga | Oil Production (May, bpd mn) | – | 1.8 | – | – | |
 | Ang | Oil Production (May, bpd mn) | – | 1.3 | – | – | |
 | SA | Retail Sales (Mar) | (12.00) | -0.4%(+2.0%) | – | – | |
18th Jun | | Bot | Interest Rate Announcement | – | 4.25% | – | 3.75% |
19th Jun |  | Mau | Interest Rate Announcement | – | 1.85% | – | 1.85% |
Also expected during this period: | |||||||
9th – 20th | | Nga | Current Account Balance (Q1) | – | -$7.0bn | – | – |
12th – 19th |  | Uga | GDP (Q1) | – | (+3.6%) | – | – |
Selected future data releases and events | |||||||
23rd Jun | | SA | Labour Market – Quarterly Employment Statistics (Q1) | (10.30) | 29.1% | 29.5% | – |
24th Jun | | SA | CPI (Apr) | (09.00) | +0.3%(+4.1%) | -0.2%(+3.1%) | – |
25th Jun |  | Zam | CPI (Jun) | – | (+16.6%) | – | – |
29th Jun | | Bot | GDP (Q1) | – | (+1.6%) | – | – |
30th Jun | | Uga | CPI (Jun) | – | (+2.8%) | – | – |
 | Ken | CPI (Jun) | – | +0.6%(+5.5%) | – | – | |
| Ken | GDP (Q1) | – | (+5.5%) | (+4.5%) | (+4.5%) | |
| Ken | Interest Rate Announcement | – | 7.00% | – | – | |
| SA | GDP (Q1, q/q(y/y)) | (10.30) | -1.4%(-0.5%) | – | – | |
| SA | Trade Balance (May, ZAR, SAAR) | (13.00) | -35.0bn | – | – | |
| SA | Budget (May, ZAR, SAAR) | (13.00) | -51.2bn | – | – | |
1st Jul | | SA | Absa Manufacturing PMI (Jun) | (10.00) | 50.2 | – | – |
2nd Jul | | SA | Current Account (Q1, ZAR) | (10.00) | -68.0bn | – | – |
| SA | Electricity Production (May) | (12.00) | (-22.8%) | – | – | |
3rd Jul | | Ken | Markit/Stanbic Bank PMI (Jun) | (08.30) | 36.7 | – | – |
7th Jul | | Mau | CPI (Jun) | – | (+2.8%) | – | – |
9th Jul | | SA | Manufacturing Production (Apr) | (12.00) | -1.2%(-5.4%) | – | – |
Also expected during this period: | |||||||
5th – 12th | | SA | SAACI Business Confidence (Jun) | – | – | – | – |
9th – 16th |  | Tan | CPI (Jun) | – | (+3.2%) | – | – |
12th – 13th | | Ang | CPI (Jun) | – | – | – | – |
12th – 19th | | Bot | CPI (Jun) | – | – | – | – |
*m/m(y/y) unless otherwise stated Sources: Bloomberg, Capital Economics | |||||||
Main Economic & Market Forecasts
Table 1: GDP & Consumer Prices (% y/y) | ||||||||||
Share ofWorld 1 | 2009-18 Ave. | GDP | Inflation | |||||||
2019 | 2020f | 2021f | 2022f | 2019 | 2020f | 2021f | 2022f | |||
Nigeria | 0.86 | 4.4 | 2.2 | -3.0 | 2.5 | 2.0 | 11.4 | 13.0 | 12.5 | 12.0 |
South Africa | 0.57 | 1.5 | 0.2 | -11.0 | 5.5 | 1.8 | 4.1 | 3.8 | 4.3 | 3.8 |
Angola | 0.14 | 2.4 | -0.3 | -6.0 | 3.0 | 2.0 | 17.3 | 25.0 | 20.0 | 17.5 |
Kenya | 0.14 | 5.6 | 5.6 | 1.5 | 5.5 | 6.5 | 5.2 | 6.0 | 5.5 | 5.0 |
Ethiopia | 0.17 | 9.7 | 9.0 | 3.0 | 7.0 | 8.5 | 15.7 | 17.0 | 14.0 | 10.0 |
Ghana | 0.15 | 7.0 | 6.5 | 0.0 | 5.5 | 6.0 | 8.7 | 9.0 | 8.5 | 8.0 |
Côte d’Ivoire | 0.08 | 6.1 | 7.5 | 1.0 | 7.0 | 7.0 | 0.8 | 1.5 | 1.0 | 1.0 |
Tanzania | 0.14 | 6.5 | 5.6 | 1.5 | 5.0 | 5.0 | 3.4 | 3.5 | 5.0 | 4.5 |
Mozambique | 0.03 | 3.7 | 2.2 | 1.0 | 5.0 | 4.0 | 2.8 | 4.0 | 4.5 | 4.0 |
Uganda | 0.07 | 5.3 | 5.6 | 1.0 | 5.0 | 5.0 | 2.9 | 4.0 | 5.5 | 6.0 |
Rwanda | 0.02 | 7.2 | 9.4 | 2.5 | 7.5 | 9.0 | 2.4 | 7.0 | 5.5 | 5.0 |
Botswana | 0.03 | 3.7 | 3.5 | -3.5 | 3.0 | 3.5 | 2.8 | 2.0 | 3.0 | 3.0 |
Zambia | 0.05 | 5.6 | 2.0 | -3.0 | 3.0 | 4.0 | 9.1 | 14.5 | 11.5 | 9.5 |
Mauritius | 0.02 | 3.7 | 3.5 | -10.0 | 3.5 | 4.0 | 0.4 | 4.5 | 4.5 | 3.5 |
Namibia | 0.02 | 3.4 | -1.4 | -3.0 | 2.0 | 3.0 | 3.7 | 4.5 | 4.0 | 3.5 |
Sub-Saharan Africa | 2.5 | 4.2 | 3.0 | -3.8 | 4.3 | 3.5 | 8.4 | 9.7 | 9.1 | 8.2 |
Sources: Refinitiv, National Sources, Capital Economics. 1) % of GDP, 2019, PPP terms (IMF estimates). | ||||||||||
Policy Rate | Latest (12th Jun.) | Last Change | Next Change | Forecasts | ||
End 2020 | End | |||||
Nigeria | MPR | 12.50 | Down 100bp (May ’20) | Down 50bp (Sep. ’20) | 12.00 | 12.00 |
South Africa | Repo Rate | 3.75 | Down 50bp (May ’20) | Down 50bp (Jul ’20) | 3.00 | 3.00 |
Angola | BNA Rate | 15.50 | Down 25bp (May ’19) | Down 75bp (Q3 ’21) | 15.50 | 14.00 |
Kenya | Central Bank Rate | 7.00 | Down 25bp (Apr ’20) | None on horizon | 7.00 | 7.00 |
Ghana | Policy Rate | 14.50 | Down 150bp (Mar ‘20) | Down 100bp (Q2 ’21) | 14.50 | 13.50 |
Uganda | Central Bank Rate | 7.00 | Down 100bp (Jun ’20) | None on horizon | 7.00 | 7.00 |
Sources: National Sources, Capital Economics | ||||||
Table 3: Key Market Forecasts | |||||||||
Forecasts | Forecasts | ||||||||
Currency | Latest | End 2020 | End 2021 | Stock Market | Latest (12th Jun.) | End 2020 | End | ||
Nigeria | NGN (Official) | 360 | 400 | 400 | NGSE | 25,183 | 20,000 | 26,000 | |
NGN (Nafex) | 450 | 450 | |||||||
South Africa | ZAR | 17.1 | 17.5 | 17.0 | JALSH | 53,640 | 49,850 | 60,600 | |
Angola | AOA | 595 | 625 | 625 | n/a | – | – | ||
Kenya | KES | 106 | 110 | 110 | NSE 20 | 2,012 | 2,300 | 2,700 | |
Ghana | GHS | 5.7 | 6.0 | 6.1 | GSECI | 1,929 | 2,000 | 2,300 | |
Uganda | UGX | 3,717 | 3,900 | 4,000 | UGSE | 1,361 | 1,600 | 1,800 | |
Sources: Bloomberg, Capital Economics | |||||||||
Virág Fórizs, Africa Economist, virag.forizs@capitaleconomics.com