Nigeria’s finances, debt relief uptake on the rise - Capital Economics
Africa Economics

Nigeria’s finances, debt relief uptake on the rise

Africa Economics Weekly
Written by Virag Forizs

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)

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

Upcoming Events and Data Releases

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).

Table 2: Central Bank Policy Rates

Policy Rate

Latest

(12th Jun.)

Last Change

Next Change

Forecasts

End

2020

End
2021

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
(12th Jun.)

End

2020

End

2021

Stock Market

Latest

(12th Jun.)

End

2020

End
2021

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