We see from the DMO’s latest quarterly release that the FGN’s domestic debt service totalled NGN604bn in Q3 ’20, representing a decline of N3bn on the year-earlier period. Having peaked in 2018, the cost to the FGN has settled on a plateau with a modestly downward bias.
The heavy bill for debt service is a weak point in Nigeria’s credit story, however, particularly as FGN revenue has crashed due to the Covid-19 virus and the related restrictions.
Total debt service according to the fullest definition of the Budget Office of the Federation consumed 95% of the FGN’s revenue inflows in H1 ’20, compared with 51% in the budget. There are tentative signs of an improvement in revenue gathering in Q3 according to CBN statistics (Good Morning Nigeria, 24 December 2020).
Payments on the bonds have been broadly flat so we wait with interest to see the coupon set at the next issue of a new instrument. The last was 9.80% in July (’20) for the new 25-year benchmark. The DMO’s issuance calendar for Q1 ’21 should be instructive.
For the zero-coupon NTBs, there has been a steady fall in the payments, which, given the results of the CBN’s auctions, should have continued into Q4. The costs of the discounts are shown as interest payments.
The data series from the Budget Office includes interest payments on the FGN’s ways and means advances from the CBN, which could be termed an overdraft of sorts and cover the “unfunded” portion of the budget deficit.
To provide some context, the series shows this portion at NGN3.27trn in 2019 and the funded element (ie debt, predominantly FGN bonds, issued by the DMO) at NGN910bn.
The Budget Office puts total debt service at N1.57trn in H1 ’20, divided between NGN850bn domestic, NGN250bn external and NGN460bn for payments on the advances from the CBN.
Relative to the pro-rata budget for the half-year, there were savings on the domestic and external payments. The budget did not allow for servicing of the advances, which are also domestic but not of the DMO’s creation, but did project sinking fund payments of NGN140bn in the six months, which were not made.
Turning to the approved 2021 budget we see a projection of NGN3.32trn for total debt service, consisting of NGN2.18trn domestic, NGN940bn external and NGN200bn for sinking fund contributions. Our hunch is that the domestic component includes payments on ways and means advances.
The payments peak in the first and third quarters of the year, when the issuance of FGN bonds has been concentrated.