Lagos - Nigeria will take action this year to slash its domestic debt from around 6.35 trillion naira ($39.8 billion) because the cost of servicing debt is high due to double-digit interest rates, the finance minister of state said on Monday.
Addressing delegates at a conference on the business environment in Lagos, Minister of State for Finance Yerima Lawan Ngama said it cost 699 billion naira to service the debt last year. Interest rates are high at around 11 percent.
“The cost of domestic debt is still very high. We are discussing with the bankers' committee the high cost of interest rates,” he said.
He said Africa's top oil producer had set up a fund starting at 100 billion naira that would begin retiring domestic debt from this year. The overall debt to GDP ratio was 18.2 percent at the end of 2012, he said, up from 16 percent a year earlier.
In absolute terms, the budget deficit was expected to fall to 585 billion naira in 2013, from 744 billion last year, he said. The budget office said last month that the deficit would fall to 1.85 percent of GDP, from 2.85 percent last year.
“Nigeria has a very strong balance sheet now, compared with a decade ago,” Ngama said.
Africa's second-biggest economy is growing as an investment destination as fiscal stability improves, its currency stabilises and economic growth remains high. But investors are wary of a long-established tendency to mismanage oil revenues, mostly because of huge corruption.
Nigeria's debt to GDP ratio is low by world standards but high for a nation that still ranks among the top 10 oil exporters - it pumps out 2 million barrels of oil a day, almost all sold abroad. Much revenue is spent on a bloated civil service - Ngama said 60 percent of government spending was on salaries last year.
Yields on Nigerian debt have fallen sharply by around 300 basis points since October, when JP Morgan included Nigeria in its emerging market sovereign bond index. Yields are now only a little above inflation, currently at 9.5 percent.
But analysts say if Nigeria was better managed, it would have a large budget surplus. - Reuters