Culled—Proshare

July 17, 2019

By FBNQuest Research                                                                                       

The latest data from the DMO for Q1 2019 reinforces the impression that the FGN’s domestic debt service has settled on a plateau. The cost for the quarter was N34bn lower than in the year-earlier period and the burden over four quarters has started to stabilize. Interest paid on NTBs has eased as a result of externalization, and the cost overall due to a decline in borrowing costs.                                                         

The chart shows that the payments on FGN bonds peak in the first and third quarters. The six largest bond issues were launched in these two quarters.

We read that the FGN could drown under the weight of domestic debt service, which accounts for 89% of all payments. The background to such fears has been succinctly stated by S&P Global Ratings: that the challenge is not the size of the burden but the paucity of revenue to service it.

Reports released by the Office of the Accountant-General of the Federation reveal that total debt service (TDS) accounted for 61.6% of the FGN’s total inflows (retained revenue and assorted extra categories) in 2017. For the first nine months of last year, the ratio deteriorated a little further to 63.0%.

The FGN’s 2019 budget has TDS at 30.8% of its total inflows. The ratio looks manageable, of course, because the revenue projections are highly optimistic. It has inflows at N6.97trn for the year, which compares with the outturn of N2.81trn for the first nine months of 2018.

Total inflows are rising from a pitifully low base as the tax authorities step up their coverage in the non-oil economy. If Nigeria is spared a steep fall in its oil revenues, there should be an improvement in the TDS/inflows ratio.