Intro: Nigerian Finance Minister Zainab Ahmed discusses inflation trends in the country, supply chains and their return to the Eurobond market. She speaks exclusively to Manus Cranny on “Bloomberg Markets: European Open” from the sidelines of the Egypt International Cooperation Forum in Cairo.
Bloomberg: Inflation, so you will have ponder there’s a great deal, I look at your data, what your inflation is done for four months in a row, you’re a six-month low. Simple question, is inflation in your view, not transitory? And have you passed the worst of this spike?
Finance Minister: We certainly feel and we have passed the worst of it all. Our Projection is that inflation will continue to go downwards throughout 2021 and also throughout the course of 2022. Our target is that in 2023, we will be moving to single digit inflation.
Bloomberg: Are the supply chains still much impacted in Nigeria or do you see a relief?
Finance Minister: We see a turn? Because transport sector in the last quarter GDP report has picked up and it’s moving, it’s moved upwards. It’s still not in the positive territory, but it’s moved up very, very significantly. And that’s a strong indication that has to do with the coming on stream off more rail lines that are now providing much needed relief in terms of transportation of goods and people.
Bloomberg: The global supply chain crunch. Is that still impacting you? And if so, where?
Finance Minister: Well, as you know, Nigeria is always impacted by the price of crude oil. And from what we’re reading and from what I’ve seen, there’s an indication that the market will still squeeze up a little bit more. We’ve been lucky so far for the past couple of months, the prices have been trending upwards, which is good, which is good for us, but we’re anticipating that it will go down as well. So, when we did a medium-term plan, our projection was actually $40 per barrel. So, we’re preparing for the worst. We’re prepared for the worst or whatever way it is. We hope it doesn’t go down below the 40.
Bloomberg: Ok, well, you know, preparedness is everything. Now we want to know, are you preparing to go back to the Eurobond market? If so, how much are you hoping to raise?
Finance Minister: Well, actually, we should be going to the market in the second week of October. Ok, our approval for the budget is six point one trillion, a billion US dollars for foreign borrowing. So, we’re looking at doing half of that in the Eurobond market and the other half in multilateral and bilateral sources. So, three billion dollars is what we’re targeting. It depends on how the market goes. Maybe we can do a little bit more, but not less than three billion US dollars.
Bloomberg: Well, of course, it’s going to come down to the perception of debt sustainability. And here’s the crunch, isn’t it? 90 percent of your spending is on debt servicing. Are you seeking to reduce that? And if so, to what level?
Finance Minister: So, we’re working on three different fronts. The first is that we’re working to increase revenue. Secondly, we’re looking at working on restructuring the debt portfolio, moving debt that are short tenured and high cost to longer tenure, to provide us some, fiscal relief. And also, we’re looking at borrowing less. We’re going to look at the next three-year plan that we have. Our borrowing has started to decline at the moment. We’re still at 23 percent of GDP, and that’s a very healthy threshold. The challenge for us is the debt service itself that we’re struggling with.
Bloomberg: Well, what do you think is reasonable because bondholders are going to ask you that question on the road show, so you must have some kind of target for improvement? What is that and what can you tell the market today?
Finance Minister: To be able to triple our revenue within the medium-term period? Moving from the current eight percent to GDP of revenue, and revenue to GDP to 15 percent, that’s our target in the economic recovery and growth plan and also to push our growth, the GDP growth up to seven percent
Bloomberg: When it comes to that dependence on the central bank. And this is perhaps one of the biggest, I suppose criticisms, is that the scale of your deficit financing via the central bank, just give me your outline of what incremental improvement you expect in 2022, if at all so?
Finance Minister: So first of all, we’re trying to securitize that borrowing from the central bank that is making it formal, open and the central bank gets to issue debt instruments that fights. There’s a provision that you can borrow, but up to a certain limit as provided for in the CBN Act, and that’s applied for from 2022.
Bloomberg: There’s not many finance ministers come into a room and tell me that they’re preparing for pretty tough times in order $40 or so. So well done to you. But the currency question is also very, very clearly I. Risk for Nigeria. We have continued weakness, other moves, have you had discussions with the central bank to stabilise the currency?
Finance Minister: Oh yeah, the central bank is doing everything that is possible, but within the limited constraints to stabilise the currency. So, the SDR years we have just received from the IMF, about 3.35 billion years dollars has helped to shore up the reserves, and that’s one of the factors that will help to stabilise the currency. But the bank also withdrew the regular funding to the bureau du change. That means that the funds they use will go to the Bureau du Change is not available in the formal market and more. And it begins to address the gap that we have between supply and demand in the Market.
Source: Bloomberg TV