• Nigeria’s Foreign Commercial Loans Rise to $8.8bn

Nigeria’s exposure to commercial loans has risen by 486.67 per cent in the last three years as the loans now make up 39.87 per cent of the country’s external debt portfolio as of March 31.

The nation’s foreign commercial loans have risen to $8.8bn, an analysis of data obtained from the Debt Management Office has shown.

A further analysis of the debt statistics shows that the commercial debts make up 39.87 per cent of the nation’s $22.07bn external exposure.

Three years ago, March 31, 2015, the country’s exposure to foreign commercial loans stood at $1.5bn. This means that in the last three years, the country’s exposure to foreign commercial loans has grown by $7.3bn or 486.67 per cent.

As of March 31, 2015, commercial loans made up 15.85 per cent of the nation’s total foreign debt commitment of $9.46bn.

The Federal Government has had to make a detour on its commitment to take only concessional loans, given the relative decline in concessional sources of loans.

The difference between commercial loans and concessional loans, is that the former comes with higher interest rates and could vacillate in accordance with market rates.

Concessional loans, usually issued by multilateral agencies, come with negligible or small interest rates and may come with extended moratorium. Moratorium is a period of grace within which repayment of the principal capital is suspended.

Conversely, commercial loans have faster periods of maturity within which the debt must be repaid or renegotiated. While some commercial loans have maturity ranging from five years to 15 years, concessional loans can have a moratorium of up to 40 years.

On the other hand, multilateral organisations hold 49.52 per cent of the country’s external debt portfolio while bilateral debts make up $2.34bn or 10.61 per cent of the country’s external debt exposure.

With a commitment of $8.52bn, the World Bank is responsible for 38.6 per cent of the country’s foreign portfolio.

Apart from the World Bank Group, Nigeria is also exposed to some other multilateral organisations such as the African Development Bank with a portfolio of $1.32bn and the African Development Fund with a portfolio of $835.14m.

Others are the International Fund for Agricultural Development with a portfolio of $160.38m; the Arab Bank for Economic Development with a portfolio of $5.88m; the EDF Energy (France) with a portfolio of $70.28m and the Islamic Development Bank with a portfolio of $17.5m.

The bilateral agencies to which the country is indebted to include the Export Import Bank of China with a portfolio of $1.9bn, the Agence Francaise de Developpement with a portfolio of $274.98m, the Japan International Cooperation Agency with a portfolio of $77.6m and Germany with a portfolio of $92.94m.

The increase in commercial loans reflects the recent trend that has seen the Federal Government increasingly issuing bonds denominated in dollars in the international capital market to raise required capital to fund budget gaps.

The commercial loans constitute $8.5bn Eurobonds while the Diaspora Bond through which the Federal Government borrows from Nigerians living abroad constitutes $300m.

The Head, National Advocacy, Social Development Integrated Centre, Mrs Vivian Bellonwu-Okafor, said the increase in the nation’s external loans generally had far-reaching economic implications.

For a country like Nigeria where inflationary trend had been very volatile, the increase had reduced the value of local currency, she said, adding that this made the ability to repay the debt difficult.

She said, “It also means Nigeria’s balance of payment will be unfavourable as more money will leave its economy than it is earning.

“Added to this is the fact that as most of the country’s resources, which hitherto would have been applied to infrastructural development and thus engendering economic growth, will now be used in servicing the monstrous loans.

“On the other hand, therefore, the economy will witness, as it is doing already, poor capital investments which will in the long run affect national income as well as the per capita income of the average citizens. The effect of this is not farfetched: stunted GDP growth.

“So from any given angle anyone looks at it, amassing debt in the form of loans spells doom and disaster, especially for a country like Nigeria where historically, accountability on the management of public loans has been at bottom levels.”

The Head of Banking and Finance at the Nasarawa State University, Keffi, Prof Uche Uwaleke, attributed the trend to the need to rebalance the ratio of domestic debt with foreign debt but warned of possible negative outcomes.

He said, “The significant increase in foreign commercial loans, essentially Eurobonds, is the fallout of the government’s strategy of gradually rebalancing the country’s debt stock in favour of external loans.

“The merit of this strategy lies in the fact that external loans have proved cheaper than domestic debts in recent times. It is hoped therefore that a greater resort to external loans in financing budget deficits will help bring down the high cost of debt servicing, which is becoming unsustainable.

“Be that as it may, the fact that the foreign loans have been more from commercial sources than multilateral or even bilateral sources should be a cause for concern. This is because commercial loans such as Eurobonds are relatively expensive to service.”

He also said, “For a mono-product economy whose forex receipts is vulnerable to external shocks, over-exposure to foreign commercial loans could prove fatal to economic growth due to exchange rate volatility.

“Another downside of commercial credits is that, unlike loans from the World Bank or African Development Bank, they are not project-tied. As a result, it is difficult to measure their impact on economic development.

“So, while the strategy to reduce debt servicing cost by turning to cheaper foreign loans is commendable, government should focus more effort on accessing project-tied concessional loans from multilateral and bilateral sources.”

Uwaleke said that too much resort to external commercial debts could once again plunge Nigeria into debt as was the case prior to the country’s liberation from the Paris Club debt stranglehold in 2005.