Wednesday, March 23, 2022 / 09:36 AM / by FBNQuest Research / Header Image Credit: RTE 

We see from the Debt Management Office's (DMO) latest quarterly data release that the total domestic debt for the 36 states of Nigeria and the FCT amounted to NGN39.6trn as at December '21, representing a rise of 4.1% q/q. Combined, the debt burden is quite substantial, more so from the perspective of dwindling state governments revenues from FAAC disbursements in recent months. Rising crude oil prices are offset by an expanding petrol subsidy burden, leading to lower remittances from the NNPC. Since most states rely on FAAC allocations for the majority of their revenue, this deduction has been a source of contention for them. 

According to the DMO report, external borrowings and disbursements from multi-laterals and bi-lateral creditors to part finance the 2021 national budget deficit accounted for a significant portion of the increase in debt stock. Combined, these borrowings account for c.60% of the country's total borrowings, with multi-laterals the largest lending community at 48.6% or USD18.7bn. 

From a domestic debt viewpoint, the FGN Bond paper retained its dominance of local issuances at 72.6% of the domestic debt stock. NTBs, Promissory Notes and Sukuk bonds remain substantial. 

The total debt-to-GDP ratio currently stands at 22.47%, well below the country's self-imposed limit of 40% and guidance of 55% by the World Bank. 

However, we note that the bill to service this debt is less comfortable. According to the report, Nigeria's domestic and foreign debt service for 2021 is estimated at around NGN2.1trn and USD2.1bn respectively. This implies a debt-service to revenue ratio of just under 50% (ex-ways and means) based on annualised revenue estimates of NGN6trn implied from the revenue run-rate of NGN5.5trn for the 11 months to Nov '21. 

To our minds, considering the current fiscal situation, the FG's focus on growing its revenue base and encouraging sub-national governments to adopt similar measures is the most prudent approach.