The FGN and the outstanding public debt remain manageable
Monday, September 20, 2021 / 1:44 p.m. / by FBNQuest Research / Header image credit: Zenith
We saw on Friday in the FGN’s investor presentation for the current Eurobond issue that its domestic debt stood at NGN 17.63 billion (USD 42.8 billion at I&E / NAFEX rate) at the end of June. , or 10.9% of 12 million GDP in Q2 ’21. The charge increased by NGN 1.12 billion in three months, including NGN 780 billion for FGN bond stock and NGN 390 billion for BNT. Bond issuance has skyrocketed as the DMO pursues its national funding target of NGN 2.34 billion for the full year. In eight months, he raised NGN 1.91 billion from the bond auction, including non-competitive bids from government agencies, and small amounts of other debt instruments. It therefore seems well placed to achieve its objective even if we are awaiting clarification on the modalities of financing the additional budget of 1.0trn NGN.
The FGN bonds and the NTBs together represent 92% of the total outstanding debt. With the exception of the sukuk, the DMO’s track record in launching new debt instruments has been poor.
The investor presentation places the 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 favorably to African peers, for which the data in the presentation is taken 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 increase strongly enough in the DMO report for the third quarter of 21 to reflect the impending Eurobond issuance. The contribution of state governments other than a Lagos state issuance program is unlikely to change much as sub-nationals are under acute fiscal pressure and will have difficulty finding willing lenders.
The public debt ceiling has been raised by the DMO from 25% to 40% of GDP. This leaves sufficient leeway for the proposed securitization of the CBN FGN’s way and means advances, estimated last year at NGN 10,000 but increasing, and other new borrowings.
The revised DMO strategy for 2020-2023 also foresees a new ceiling for sovereign guarantees of 5% of GDP. This is an area that the FGN wishes to develop for the financing of infrastructure.
If we expand the measure of public debt to cover bonds issued by AMCON (all held by CBN) and bonds of public agencies such as NNPC, the burden would not exceed 30% of GDP. The weak points in the Nigerian debt history are the ratio of debt service to FGN income and the impact of borrowed funds on development.
FGN domestic debt (tn NGN) |
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Sources: Debt Management Office (DMO); Federation Budget Office; Fundraising FBNQuest |
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