Tuesday, December 21, 2021 / 10:39 AM / by FBNQuest Research / Header ImageCredit: Ecographics

Last week, the Debt Management Office (DMO), publishedNigeria's total public debt portfolio figures. Based on the report, Nigeria'sdebt climbed to NGN38.0trn (USD92.6bn) as at September 2021, up 15%year-to-date, from NGN32.9trn in 2020. Y/y, the debt portfolio has risen by 18%from NGN32.2trn. Split, external and domestic debt account for 41.0% and 59.0%respectively of total debt stock. The DMO's debt management strategy(2020-2023) has a domestic to external debt mix limit of 70% to 30%. Last year,the DMO raised the public debt ceiling to 40% of GDP (from 25%). The outturn atend-2020 was 21.6%. Based on 2020 GDP, the new ceiling allows an additionalborrowing of NGN23trn.

Broken down, Nigeria's total domestic debt ofNGN22.4trn is split between federal government (FG) debt of NGN18.2trn andstates' NGN4.2trn as at 9M'21 which implies 81% and 19% respectively. The FG'sdebt comprises FGN bonds, treasury bills, savings bonds, sukuks, green bondsand promissory notes. FGN bonds and treasury bonds are the most importantsources of domestic sovereign debt, constituting around 93% of the government'sdomestic debt as at 9M'21.

Lagos state remains the most indebted state, with atotal debt of NGN532.1bn, ahead of Akwa Ibom (NGN234.9bn), Rivers (NGN226.4bn),Delta (NGN207.2bn) and Ogun (NGN192.4bn) states. In 2020, Lagos state issued aNGN100bn domestic bond under its NGN500bn debt issuance programme. In December,it raised a further NGN125bn under the programme, bringing total issuances inthe last two years to NGN225bn. Before these, the state had previously raisedbonds under NGN107.5bn and NGN167.5bn issuance schedules.

Total external debt in 9M'21 of USD38.0bn comprises ofmultilateral funding of USD18.3bn, bilateral loans of USD4.4bn, Eurobonds ofUSD14.4bn, diaspora bond of USD300m, and promissory notes of USD604m. InJanuary 2021, about USD500m in Eurobonds matured and were repaid by the FG,while raising around USD4.0bn Eurobonds in September 2021. Total external debthas risen by 14% ytd and 19% y/y respectively.

Nigeria's 2021 Appropriation Act had a fiscal deficitof NGN5.6trn. According to the plan, around NGN4.7trn was expected to befinanced via debt instruments. In July '21, the president signed asupplementary budget that approved a further debt allowance of NGN802.1bn. DMOdata reveals that total domestic debt issuances in 2021 are around NGN8.2trn,excluding the USD4bn Eurobond issuance and IMF disbursements (loans) toNigeria. A new FGN Sukuk bond of NGN250bn is currently open and will close onFriday, 24 Dec '21.

According to the Fiscal Responsibility Act, the fiscaldeficit as a proportion of GDP should not exceed 3%. However, Nigeria since2017, has consistently breached this benchmark with the fiscal deficit on therise. In 2020, fiscal deficit to GDP hit 4% and is on track to rise even higherin 2021.

In the past five years, realised federal revenues havebarely hit 60% of annual targets. With debt on the rise and relatively weakrevenues, debt sustainability is now more concerning. According to the budgetoffice data, Nigeria's debt service to revenue reached 72% in 2020, and basedon the current trajectory, it could surpass 2020 levels this year. Therefore,reforms and diversification of the government's revenue base are necessary forimmediate fiscal improvements.

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