July 13, 2020
by FBNQuest Research
We can see from the latest data release by the DMO that the FGN’s domestic debt service totaled N609bn in Q1 2020, compared with the year-earlier figure of N610bn. The burden has settled on a plateau due largely to positive rate movements. If we take the 364-day Nigerian T-bill (NTB) as an example, the average yield at primary auction tumbled from 16.5% in Q1 2019 to 6.0% in the first quarter this year. The decline was more than 800bps for the 91-day bill. In terms of the total cost by instrument, there was a small rise for FGN bonds and a small fall for NTBs.
While the historic burden has been stable since early 2018, the federal finance ministry continues to project sizeable annual increases in the total debt service bill to N2.66trn this year, N3.13trn in 2021 and N3.49trn in 2022 on the basis of an official exchange rate of N360 per US dollar (since adjusted to N381). The ministry does not share its interest rate assumptions.
Domestic payments accounted for 82% of total debt service in 9M 2019.
Analysts focus on debt service in Nigeria because of the very poor revenue generation. The latest outturn (for 9M 2019) gives us a ratio of 58.6%. The ministry’s projections show the ratio improving to 42.2% in 2022. The double whammy of the Covid-19 virus and the plunging oil price will surely bring lower, not higher revenue collection. We suspect that the hopes for non-oil revenue in Nigeria’s worst recession in almost 30 years are fanciful.
FGN domestic debt service payments (N bn)
Sources: Debt Management Office (DMO); FBNQuest Capital Research
The others in the chart amount to N9bn, which was principally the payment of rentals on the sukuk issuance (since increased by N162bn).
The payments peak in the first and third quarters, when the issuance of FGN bonds is concentrated.