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Experts caution, ‘A devaluation in the naira is a key risk to external debt sustainability’



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One of the Big Four consulting firms, PricewaterhouseCoopers (PwC), has in a recent report laid out the external debt-associated risk to the devaluation of the naira.

In the report titled, “Nigeria’s refinancing plan: Impact on debt sustainability is likely to be modest”, PwC said that the recently approved refinancing plan by the Federal Executive Council (FEC) was expected to have only a modest impact on the nation’s debt sustainability.

“The Federal Executive Council (FEC) recently approved a plan to issue USD3 billion worth of foreign bonds of up to three years’ maturity to refinance maturing naira denominated treasury bills”, the report stated.

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“This decision is in line with the Federal Government’s (FG) debt management strategy to rebalance its debt portfolio for domestic and foreign debt, from the current 69%:31% to a targeted 60%:40%.

“Although this plan is yet to be approved by the National Assembly, we expect that if implemented, it would have a modest impact on broad debt sustainability indicators”, it added.

Commenting on the impact of naira devaluation on debt sustainability, PwC observed thus:.

“A devaluation in the currency is a key risk to external debt sustainability. However, this risk is somewhat offset by the natural hedge provided by the high foreign currency composition of government revenues.

“Under a scenario of an export shock similar to the episode recorded in 2015, we assume a 44% decline in exports in 2018. Following this, we estimate external debt to exports will rise sharply to 71%, up from 27% in 2017.

“While Nigeria’s debt vulnerability worsens under this scenario, it still remains below the 100% threshold level – at this level, Nigeria’s external debt would need to reach USD60.2 billion.”


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