Debt Yields Show Nigeria on the Wrong Side of Higher Oil Prices

(Bloomberg) -- Yields on Nigeria’s international debts spiked as crude hit triple digits after Russia invaded Ukraine.

The yield on the West African country’s 2047 paper rose to 10.07% as of 14:12 p.m. on Thursday, the highest since May 2020. It has been rising steadily for six days, the longest streak since November 2021. The yield on the shorter term debt maturing 2028 rose to a record 7.99%. 

Oil’s surge to more than $100 per barrel for the first time since 2014 will raise the cost of fuel subsidies for Africa’s largest crude producer, which had already set aside 3 trillion naira ($7.2 billion) amid lower prices. Allocating even more to subsidies will worsen Nigeria’s spending shortfalls, according to the International Monetary Fund, which forecasts that the country’s deficit will increase to 6.4% of gross domestic product this year from a pre-pandemic average of 4.3%.

“With the kind of prices we are seeing, obviously we are not happy about it,” Timipre Sylva, Nigeria’s minister of state for petroleum resources, told Bloomberg Television on Feb. 22 as tensions over Ukraine escalated.

Africa’s largest economy imports all its gasoline, which the country’s state-owned energy company sells at a large loss to keep the price for the population among the lowest in the world. This intervention erodes government revenue from oil, which in the first eleven months of 2021 was about 960 billion naira, a little over half the targeted amount, according to a presentation by the country’s Budget Office.

At the same time, Nigeria’s inability to meet its OPEC+ quota is also suppressing government income. Output fell last year to less than 1.5 million barrels a day of crude equivalent in December from about 1.7 million in January, according to government data. 

To offset some of the burden imposed by gasoline subsidies, Nigeria aims to pump as much as it’s allowed under the cartel’s rules. “We would like definitely to be back on track later this year,” Sylva said.

Output is unlikely to rise fast enough, according to the IMF. It will probably increase only gradually “as security and technical challenges dissipate, but production will remain below the 2019 level,” it said.

©2022 Bloomberg L.P.