March 18, 2021/Proshare

By FBNQuest Research

At end-December the FGN’s domestic debt stock totalled NGN16.02trn (USD40.7bn at the NAFEX rate of 30 December), equivalent to 10.5% of the year’s GDP. The stock increased by NGN180bn in the quarter and NGN1.75trn over 12 months. Outstanding FGN bonds increased by NGN1.31trn in 2020: the DMO raised NGN1.66trn (gross) over the year from sales of the bonds at its monthly auctions. The DMO has had mixed results in launching new debt instruments to meet the funding targets set by the FGN. The most successful and most promising in our view would be the sukuk, which accounted for just NGN360bn of the total. 

FGN bonds and Treasury bills (NTBs) together made up 90.8% of the total stock. 

Total public debt amounted to NGN32.92trn at end-December, representing 21.6% of GDP. This is the DMO’s measure of FGN and state governments’ debt, both domestic and external. Its latest strategy document has raised the ceiling on this measure to 40% of GDP, which leaves borrowing headroom of about NGN28trn.

A fuller measure would include bonds issued by AMCON (held by the CBN), and the obligations of the NNPC and other public agencies. This would bring the burden to no more than 30% of GDP. We are not including the proposed conversion of the FGN’s borrowings from the CBN (ways and means advances), said to total NGN10trn, into 30-year bonds. In line with best practice, we also exclude OMO bills, issued by the CBN for purposes of liquidity management, and contingent liabilities such as sovereign guarantees.

This debt stock/GDP ratio would still compare very favourably with peer EMs and frontiers.

The DMO’s strategy document adjusted its target for the domestic/external blend of public debt (its own measure) to 70/30. The mix at end-December was 61/39. The adjustment was made against the background of (then) falling domestic market rates. For the longest FGN bond (Mar ’50) the yield fell below 7% at one point but has now settled above 11.0%.

The FGN’s 2021 budget projects a deficit of NGN5.60trn. Other than forecast asset sales of NGN200bn, the balance would increase the public debt burden by about 15% from end-2020 levels. We understand from the local media that the DMO has the remit to raise NGN4.68trn from a combination of domestic and external sources. This sizeable increase in the borrowing requirement has helped to push rates for FGN bonds and NTBs.

FGN domestic debt (NGN trn)

Sources: Debt Management Office (DMO); FBNQuest Capital Research