December 20, 2022/United Capital Research

According to Debt Management Office (DMO), Nigeria’s Federal Government public debt stock printed at N38.9tn in 9M-2022. This represents a 14.6% y/y increase compared to N33.9tn recorded in 9M-2021. On a q/q basis, total public debt stock rose by 2.4% compared to N38.0tn in H1-2022. Domestic debt, which accounted for 55.4% of the total, rose by 18.2% y/y to N21.5tn in 9M-2022 compared to its print of N18.2tn in 9M-2021. In tandem, the external debt from the international debt market rose by 10.5% y/y to N17.3tn in 9M-2022 relative to N15.7tn in 9M-2021. Notably, the country’s debt burden continues to rise in the face of dwindling government revenue and foreign exchange pressures.

To provide context, the Federal Government’s domestic debt stock continues to surge higher as the country is heavily dependent on the domestic debt capital to meet its recurrent and capital expenditures. The FGN bonds remain the primary debt instrument in the domestic market, accounting for 73.2% of the total debt in 9M-2022. Other instruments include, but are not limited to, Treasury Bills, Promissory notes and FGN Sukuk bonds. On the external side, external debt climbed 10.5% y/y on the back of the $1.3bn Eurobond issuance in Mar-2022.

Although Nigeria was not very active in the international debt market due to rising global borrowing costs, the depleting naira against the dollar increased the value of the stock. Notably, the naira depreciated against the dollar by 5.7% y/y between 9M-2022 and 9M-2021. The rising debt profile remains a worry for the country as revenue generation remains below par (c.66.7% of prorated budget).

Notably, the FG spent N3.5tn on debt servicing payments for the same period under review. This represents 32.9% more than the projected sum and 94.6% of the total revenue generated during the period.

Looking forward, we see no respite for Nigeria’s debt crisis, and we believe the country’s debt burden will worsen. We expect sustained reliance on the domestic debt markets to fund budgetary items, given the unattractiveness of the international debt market.

However, to resolve the impending debt crisis, the Federal Government would need to:

1) maximise revenue generation sources,

2) block leakages among government MDAs,

3) reduce wastages from governance costs, and

4) eliminate the subsidy regime.