Rewane: Interest rate spike’ll worsen debt servicing cost

Sub-Saharan African countries’ already high cost of servicing debt will become “excruciating” when interest rates start to head north, the Chief Executive Officer,


Financial Derivatives Company (FDC) and member of the Presidential Economic Advisory Council, Mr. Bismarck Rewane, has said.


The FDC boss stated this in the firm’s Lagos Business School (LBS) Executive Breakfast Session presentation for the month of July obtained by New Telegraph  yesterday.


According to him, Sub Saharan African countries are in a fiscal crisis occasioned by the coronavirus (COVID-19) pandemic, with budget deficits projected to increase 11 per cent of Gross Domestic Product (GDP) across the continent, even as the region continues to grapple with its rising debt stock.


He said that the average debt to GDP ratio of African countries now stands at over 40 per cent, adding that the cost of servicing debt will become, “excruciating when interest rates start to increase.” Former Central Bank of Nigeria (CBN) Governor and the deposed Emir of Kano, Muhammad Sanusi II, had last week, also called on African governments to immediately address the level of their debt service obligations. The former CBN boss, who made the call at a webinar hosted by AZA, said that while it would not be prudent for African countries to cut spending at a time the continent is grappling with coronavirus crisis, it was imperative that they deal with the level of their debt service obligations.


Nigeria, like other major oil exporters on the continent, has been especially hard hit by the coronavirus crisis, as the turmoil triggered a sharp drop in the price of crude oil – the commodity that accounts for about 90 per cent of the country’s export earnings as well as the bulk of government revenue.


The impact of the pandemic, in fact, compelled the government to revise the 2020 budget and to also seek the National Assembly’s approval to borrow $5.51 billion mainly to enable it fund the budget.


However, the National Assembly’s approval of the government’s loan request triggered concern in some quarters about the country’s rising total public debt stock, which hit N27.4 trillion as at December 2019.


Indeed, latest data released by the Debt Management Office (DMO) last Thursday shows that Nigeria’s total public debt rose to N28.62 trillion ($79.5 billion) as of March 2020, up 15 per cent from a year earlier.


The DMO data also indicates that the government spent a whopping N609.13 billion ($1.69 billion) to service domestic debt in the first quarter of 2020.


The Monetary Policy Committee (MPC) of the CBN had, at its meeting in May, reduced the benchmark interest rate, the Monetary Policy Rate (MPR), to 12.5 per cent from 13.5 per cent, citing the need to stimulate credit expansion to critically important sectors, thereby reviving economic activities for quick growth recovery from the effects of the pandemic.


Nigeria’s inflation rate rose for a ninth consecutive month to hit 12.40 per cent in May 2020 and, according to Rewane, is likely to increase further to 13 per cent in June.


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