Nigerian plans increased use of sovereign guarantees to fund infrastructure in a bid to reduce the need for raising debt for such projects.
Africa’s largest economy will raise the value of these assurances to 5% of gross domestic product from 1.5% in 2019, Patience Oniha, head of the Debt Management Office, said at a conference in Lagos Thursday.
“On the part of the sovereign, we want to give guarantees,” Oniha said. “We can’t keep borrowing on balance sheet.”
Nigeria’s public debt, including central bank overdrafts, as a proportion of GDP at 34.4% in 2020, is relatively low compared to peers. However, the West African nation spends more than a third of its revenue servicing its debt due to very low tax income.
The government is looking at guarantees as a way to trim public debt, Oniha said. Investors will be able to raise funding from banks and institutions based on the government guarantee.
A search is underway for an adviser to develop a framework to build capacity to identify, review and evaluate projects for sovereign guarantees, Oniha said. “We are actually asking for an embedded adviser to handhold us through that process because we expect the volume of off-balance-sheet transactions to be significant,” she said.
Africa’s most populous country plans to boost infrastructure investments to stimulate economic growth after exiting its second recession in four years in the fourth quarter.
The nation needs at least $3 trillion over 30 years to close its infrastructure deficit, Moody’s Investors Service said in a November report.