According to the most recent quarterly release from the Debt Management Office (DMO), the FGN's domestic debt stock climbed by 2.9% q/q and 18% y/y to NGN21.6trn (USD50bn) in Q3 '22. Standardized, this equates to around 12.4% of (2021) GDP. The domestic debt held by the FGN made up about 80% of the nation’s total domestic debt stock. The surge in domestic debt is mainly attributable to the DMO’s record-breaking issuance of FGN bonds at its monthly primary market auctions this year. Over the 9M ’22 period, the agency issued NGN2.1trn (ex. non-competitive bids) in FGN Bonds. This compares with around NGN1.8trn issued over the same period of 2021.

In comparison, the FGN’s external debt stock has remained largely unchanged this year due to challenges with raising commercial debt from external sources owing to tight financial market conditions internationally.

As such, following its revenue shortfalls, the FGN has been forced to rely on domestic borrowing to cover its funding gaps.

Of the total domestic debt held by the FGN, 73.2% were in FGN bonds. This is up from 72.5% in June 2022 but down from 73.8% in September 2021.

Nigerian Treasury bills (NTBs) made up 21.0% compared with 19.2% in the year-earlier period. The balance consists of FGN Sukuk bonds (2.8%), promissory notes (2.4%), and smaller sums from Treasury bonds, Savings bonds, and Green bonds.

Although the level of debt in relation to GDP appears to be manageable, Nigeria’s credit story is weakened by the government’s low revenue collection, which, as we mentioned in our previous note (Good Morning Nigeria, December 28, 2022), results in an unreasonably high debt-service-to-revenue ratio.

In reflection of this, Fitch ratings last month downgraded Nigeria's Long-Term Foreign-Currency Issuer Default Rating (IDR) to 'B-' from 'B previously. This followed a similar downgrade by Moody’s to B3 from B2 previously.

The nation’s legislature recently approved a 2022 supplementary budget of NGN820bn which will be funded by new borrowings. This will increase the fiscal deficit to c.NGN8.2trn from NGN7.4trn envisaged in the initial 2022 budget.

We continue to anticipate a considerable rise in the FGN's domestic debt profile due to persistent revenue underperformance and huge budget deficits. The 2023 budget proposals imply a fiscal deficit of   NGN10.8trn compared with a (revised) fiscal deficit of NGN8.2trn for 2022.