Debt data, sustainability issues, and the new debt limit policy were discussed with the authorities in the course of the 2011 Article IV consultation. This DSA follows the IMF and World Bank Staff Guidance Note on the Application of the Joint Fund-Bank Debt Sustainability Framework for Low-Income Countries, January 22, 2010 (available at http://www.imf.org/external/pp/longres.aspx?id=4419).
IMF (2011), Country Report for Nigeria 11/57.
External debt stock increased by US$1.5 billion during the year of 2011 due to the Euro bond issuance (US$0.5 billion) and infrastructure loans (about US$1 billion).
The DSA is based on WEO projections for crude prices as of December, 2011. Nigerian oil price is projected by using the past relationship between the Nigerian crude price and average global oil price.
The government is assumed to establish a medium-and long-term sustainable fiscal position. The long-term sustainable fiscal position is calculated on the basis of a constant consumption of oil wealth in real terms. This implies a decline in the consumption of oil wealth (the non-oil fiscal deficit) as a percent of non-oil GDP over time. Oil reserves are sufficient to sustain oil production at or above current levels throughout the projection period. The discount in the budget oil price relative to the actual oil price and prudent expenditure policy provides for overall surpluses and an accumulation in financial assets throughout.
As planned, the authorities issued a US$500 million Eurobond in early 2011. The loan from China would be for 20 years with a 2.5 percent interest rate.
The LIC debt sustainability framework (DSF) provides a methodology for assessing external debt sustainability which is guided by indicative, country-specific, debt burden thresholds based on the relative strength of a country’s policies and institutions. Given Nigeria’s rating of 3.5 (medium performer), which is the three year average of the World Bank’s Country Policy and Institutional Assessment (CPIA), the relevant country-specific thresholds are a PV of external debt to GDP of 40 percent, a PV of external debt to exports of 150 percent, and an external debt service to exports ratio of 20 percent.
Under the alternative scenario in the Staff Report, which assumes that some key fiscal reforms are not implemented during 2012–15, the public debt to GDP ratio would rise to about 24 percent of 2015.