January 8, 2024/FBNQuest Research

Our chart today, drawn from the Debt Management Office’s (DMO) latest quarterly data on public debt, shows that the FGN’s domestic debt service costs increased markedly by  118% y/y to almost NGN1.8trn as at the end of Q3 ’23. The main factor behind the mounting debt service burden is the significant rise of 133% y/y in the FGN’s domestic debt stock to NGN50.2trn as at Q3 ’23. This increase is primarily due to the securitisation of NGN22.7trn ways and means advanced by the CBN, out of an outstanding balance of almost NGN27trn as at May ’23.

According to the DMO, the rise was also due to the securitised FGN Bonds in respect of ways and means from May to Sep ’23 which have not yet been verified and reconciled.

From the CBN’s data, we see that the ways and means for Jun ’23 totalled around NGN4.4trn.

When annualised and adjusted for seasonality, the total debt service cost for Q3 ’23 implies an estimated interest rate of c.14.3%. This compares with c.11.5% for FY ’22 (ex -ways and means).

A key benefit of securitising the ways and means is the reduction in interest cost and the FGN’s debt service payment obligations.  

For context, the interest rate on the securitised ways and means advances decreased to 9% per annum from the monetary policy rate (MPR) +3% before the securitisation.

Returning to Q3 ‘23, interest payments on FGN bonds accounted for 92% of total debt service from 84% in Q3 ’22. This shift resulted from the rise in interest payments on FGN bonds to NGN1.6trn from NGN686bn in Q3 ’22.

Interest payments on Nigerian Treasury Bills (NTBs), the second most significant debt service component, increased by 21% y/y to NGN115bn.

Going forward, the total debt service cost is expected to rise, following the Senate’s approval of the securitisation of an additional NGN7.3trn in ways and means advances from the CBN in Dec ’23, in response to the President’s request.