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COMMENTARY: Nigeria’s Total Debt Stock on the Rise



Nigeria External Debt Service Cost

By FBNQuest Research

otal Debt Stock on the Rise

Last week, the Debt Management Office (DMO) published Nigeria’s total public debt portfolio figures. Based on the report, Nigeria’s debt climbed to N38.0trn (USD92.6bn) as at September 2021, up 15% year-to-date, from N32.9trn in 2020. Y/y, the debt portfolio has risen by 18% from N32.2trn.

Split, external and domestic debt account for 41.0% and 59.0% respectively of total debt stock. The DMO’s debt management strategy (2020-2023) has a domestic to external debt mix limit of 70% to 30%. Last year, the DMO raised the public debt ceiling to 40% of GDP (from 25%). The outturn at end-2020 was 21.6%. Based on 2020 GDP, the new ceiling allows an additional borrowing of N23trn.

Broken down, Nigeria’s total domestic debt of N22.4trn is split between federal government (FG) debt of N18.2trn and states’ N4.2trn as at 9M’21 which implies 81% and 19% respectively. The FG’s debt comprises FGN bonds, treasury bills, savings bonds, sukuks, green bonds and promissory notes. FGN bonds and treasury bonds are the most important sources of domestic sovereign debt, constituting around 93% of the government’s domestic debt as at 9M’21.

Lagos state remains the most indebted state, with a total debt of NGN532.1bn, ahead of Akwa Ibom (N234.9bn), Rivers (N226.4bn), Delta (N207.2bn) and Ogun (N192.4bn) states.

In 2020, Lagos state issued a N100bn domestic bond under its N500bn debt issuance programme. In December, it raised a further N125bn under the programme, bringing total issuances in the last two years to N225bn. Before these, the state had previously raised bonds under N107.5bn and N167.5bn issuance schedules.

Total external debt in 9M’21 of USD38.0bn comprises of multilateral funding of USD18.3bn, bilateral loans of USD4.4bn, Eurobonds of USD14.4bn, diaspora bond of USD300m, and promissory notes of USD604m.

In January 2021, about USD500m in Eurobonds matured and were repaid by the FG, while raising around USD4.0bn Eurobonds in September 2021. Total external debt has risen by 14% ytd and 19% y/y respectively.

Nigeria’s 2021 Appropriation Act had a fiscal deficit of N5.6trn. According to the plan, around N4.7trn was expected to be financed via debt instruments. In July ’21, the president signed a supplementary budget that approved a further debt allowance of N802.1bn. DMO data reveals that total domestic debt issuances in 2021 are around N8.2trn, excluding the USD4bn Eurobond issuance and IMF disbursements (loans) to Nigeria. A new FGN Sukuk bond of N250bn is currently open and will close on Friday, 24 Dec ’21.

According to the Fiscal Responsibility Act, the fiscal deficit as a proportion of GDP should not exceed 3%. However, Nigeria since 2017, has consistently breached this benchmark with the fiscal deficit on the rise. In 2020, fiscal deficit to GDP hit 4% and is on track to rise even higher in 2021.

In the past five years, realised federal revenues have barely hit 60% of annual targets. With debt on the rise and relatively weak revenues, debt sustainability is now more concerning. According to the budget office data, Nigeria’s debt service to revenue reached 72% in 2020, and based on the current trajectory, it could surpass 2020 levels this year. Therefore, reforms and diversification of the government’s revenue base are necessary for immediate fiscal improvements.


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