Though the 2019 budget is more of an “election budget” (as it may not really see much zealous implementation), we expect to see more deficit financing in the year, given that the revenue assumptions remains quite optimistic. A deficit of N1.86tn was built into the 2019 budget, N90.0bn lower when compared to N1.95tn in the 2018 budget.
In terms of the debt mix, the federal government (FG) tapped into the global debt market two times in 2018, raising a total of $5.2bn and bringing its naira: dollar debt mix to 62:38 – close to its fiscal target of 60:40 by 2019. If the Debt Management Office’s (DMO) debt re-balancing strategy is anything to go by, we may yet see more external financing this year, even though foreign borrowing costs have increased considerably in the wake of the US Fed’s policy normalization.
It is worth mentioning that external debt remains relatively cheaper than local borrowings, and Nigerian fiscal authorities – already saddled with domestic debt service to the tune of N1.7tn (19.3% of the total budget) – would likely lean towards optimizing their borrowing strategy to favour cheaper notes.
United Capital Research