FGN’s Domestic Debt Stock On A Plateau

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The FGN’s domestic debt stock amounted to N12.29trn (US$40.0bn) at end-September, equivalent to 10.8% of 2017 GDP. The burden has increased by 1.2% q/q yet contracted by 1.7% y/y. Redemption of NTBs (Nigerian T-bills) totalling N640bn in H1 2018 within the FGN/DMO policy of “externalisation” (the deployment of Eurobond proceeds to pay down naira-denominated paper) explains the modest decline.

Their medium-term target is a 60/40 split between the domestic and external components of public debt (FGN and states combined).

  • The mix stood at 71/29 at end-September, compared with 73/27 at end-December. The policy is designed to benefit from the interest rate differential favouring external issuance. The ratio will again move in the desired direction in the data for Q4 2018 due to the US$2.8bn Eurobond issuance in November.
  • The DMO’s strategy is also designed to counter “crowding out”. The CBN data for October, however, show credit to the private sector of N22.7trn (US$74bn), representing unexciting increases of 2.1% q/q and 3.6% y/y.
  • The headline ratio of 10.8% of GDP becomes 19.7% for total public debt (ie FGN and states, domestic and external). If we expand the measure to include public agencies and contractor obligations (but not contingent liabilities), we would arrive around a highly respectable 30% of GDP.
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FGN domestic debt (N trn)

Sources: Debt Management Office (DMO); FBNQuest Capital Research
  • We often hear that the debt stock/GDP ratio, while popular with the rating agencies and financial media, has limited relevance because debt obligations are serviced by the government and not the broader economy (whatever its size). A more critical ratio would be the proportion of FGN revenues required to service the debt (currently around 60%).

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