September 20, 2021/Proshare

by FBNQuest Research 

We saw in the FGN’s investor presentation on Friday for the current Eurobond issue that its domestic debt totalled NGN17.63trn (USD42.8bn at the I&E/NAFEX rate) at end-June, equivalent to 10.9% of 12M GDP to Q2 ’21.  The burden increased by NGN1.12trn in three months including NGN780bn for the stock of FGN bonds and NGN390bn for NTBs. The issuance of bonds has soared as the DMO chases its domestic funding target of NGN2.34trn for the full year. In eight months it has collected NGN1.91trn from the auction of bonds including non-competitive bids from public agencies, and small amounts from other debt instruments. It would seem therefore well placed to meet its target although we await clarification on the funding arrangements for the NGN1.0trn supplementary budget.

FGN bonds and NTBs together comprise 92% of the entire debt stock. With the exception of the sukuk, the DMO’s record in launching new debt instruments has been mediocre. 

The investor presentation puts public debt at 21.6% of GDP in 2020. This measure covers the debt of the FGN and state governments, both domestic and external. The ratio compares very favourably with African peers, for which the data in the presentation is drawn from the IMF’s World Economic Outlook and may not be strictly comparable: 127.1% for Angola, 78.0% for Ghana and 68.7% for Kenya. 

Nigeria’s ratio will of course rise quite sharply in the DMO’s report for Q3 ’21 to reflect the imminent Eurobond issuance.  The contribution of state governments other than an issuance programme by Lagos State is unlikely to change much since the subnationals are under acute fiscal pressure and will struggle to find willing lenders.   

The ceiling for public debt has been raised by the DMO from 25% to 40% of GDP. This leaves ample headroom for the proposed securitization of the FGN’s ways and means advances from the CBN, estimated last year at NGN10trn but rising, and other new borrowings. 

The DMO’s revised strategy for 2020-2023 also brings a new ceiling for sovereign guarantees of 5% of GDP. This is an area the FGN wants to develop for infrastructure financing. 

If we broaden the measure of public debt to cover the bonds issued by AMCON (all held by the CBN) and the obligations of public agencies such as the NNPC, the burden would increase to no more than 30% of GDP. The weak points of the Nigerian debt story are the debt service/FGN revenue ratio and the developmental impact of borrowed funds.

FGN domestic debt (NGN trn)  

Sources: Debt Management Office (DMO); Budget Office of the Federation; FBNQuest Capital Research