March 29, 2021/Proshare
By FBNQuest Research
We can see from our chart capturing the FGN’s domestic debt service that total payments increased by 39% y/y in Q4 to NGN352bn. The rise for the full year was a more modest 11%. As a rough guide, the stock of domestic debt grew by 12.3% in the 12 months to end-2020. The background is the steep rise in the FGN’s borrowing requirement (and therefore the DMO’s issuance, which is the predominant cover for the FGN’s funded deficit).
The COVID-19 virus has exacted a heavy fiscal toll, a combination of squeezed revenue collection and additional spending to soften its impact. Total debt service, domestic and external, consumed 95% of the FGN’s total inflows in H1 ’20 according to the fullest definition of the Budget Office (see below), compared with just 51% in the budget. We should say that the ratio in the budget was already high in terms of EM peer comparisons and of the resources still available for capital spending.
Nor is it (the ratio) going to improve much in a hurry. In February the federal finance minister set an aggressive target of total revenue collection hitting 15% of GDP by 2023. The outturn was just 5.9% last year (NGN9.0trn) for gross federally collected revenue (ie before distribution to the three tiers) according to CBN’s fiscal data, and the attainment of the target would require at least another NGN15trn.
The Budget Office’s full definition includes payments on the FGN’s ways and means advances from the CBN, which essentially are an overdraft. The DMO does not currently capture these advances in its series for the debt stock or debt service. They are likely to be securitised, at which point they would be incorporated in the DMO’s data.
The Budget Office shows total debt service in H1 ’20 at NGN1.57trn, consisting of NGN854bn domestic, NGN252bn external and NGN461bn in interest payments on the advances.
These latter payments have been rising steeply, from NGN63bn in 2018 to NGN339bn in 2019.
The FGN’s 2021 budget has total expenditure of NGN13.59trn including total debt service of NGN3.32trn, which would represent 42% of projected revenue but which, we assume, does not include interest payments on the advances. The interest rate payments underpinning the budget are not public knowledge. Returns on FGN paper crashed in November and December but have recovered on the back of supply factors (ie the huge budget deficit for financing).
The payments peak in the first and third quarters of the year, when the issuance of FGN bonds has been concentrated.
FGN domestic debt service payments (NGN bn)
Sources: Debt Management Office (DMO); FBNQuest Capital Research
