Monday, March 21, 2022 / 10:42 AM / by FBNQuest Research / Header Image Credit: FBNQuest Research

Last week, the Debt Management Office (DMO) published its quarterly data series on Nigeria's public debt. Based on the data, the FGN's domestic debt stock totaled NGN19.2trn (USD46.2bn), equivalent to c.11.1% of 2021 GDP. As shown in our chart below, the debt stock has risen sharply since Dec '20, increasing by NGN3.2trn or 20.1% y/y due to the DMO's record funding raise of NGN2.3trn (ex-competitive bids) through its regular FGN bond auctions in 2021. This sum (NGN2.3trn) excludes the NGN250bn raised through Sukuks, and other smaller sums raised via other instruments, such as the FGN savings bonds during the year.

FGN bonds accounted for 72.6% of total domestic debt, slightly down from 73.8% in the prior quarter. If we include Treasury bills (NTBs), both instruments made up around 92.2% of the total domestic debt stock. 

Total public debt as at end-Dec '21 also increased by 20% y/y to NGN39.6trn, equivalent to 22.7% of 2021 GDP. This measure includes the stock of FGN and state governments' domestic and external debt. The total public debt implies an external to domestic debt split of 40:60. 

The domestic debt balance excludes bonds issued by AMCON (held by the CBN), and the obligations of the NNPC and other public agencies, and the CBN's ways and means of financing to cover the unfunded portion of the FGN's budget deficit. Including these would bring the total public debt stock to slightly over 35% of GDP.

This level of debt is still below the 40% debt ceiling set by the DMO and compares favourably with debt ratios of peers such as Kenya, South Africa, and Ghana which are 69%, 82%, and 86%, respectively, according to IMF data.

However, Nigeria's debt profile is weakened by insufficient revenue collection, resulting in an abnormally high debt-service-to-revenue ratio. The FGN's retained revenue to GDP was less than 5% of GDP on an annualised basis in the 11 months to Nov '21, while the debt-service to revenue ratio was 76%.

Given the projected borrowings of NGN5.1trn (ex-supplementary budget) this year, the debt-service-to-revenue ratio may well surpass FY '21 levels.

The size of the FGN's borrowings this year, estimated at NGN5.1trn (excluding the supplementary budget), including the recent USD1.25trn Eurobond issue, is likely to exert upward pressure on market yields in H2 '22.