More FGN Pro-note Issues to Come


October 26, 2020

by FBNQuest Research

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An increasing share of the FGN’s domestic debt consists of its promissory notes issued to clear arrears. These amounted to N972bn (US$2.52bn) at end-September or about 6% of the burden. After allowing for repayments already made on maturity of N187bn, the total hit could rise to a maximum of N2.7trn, subject to verification of claims by the DMO and the National Assembly.

There is a secondary market in the pro-notes. Some domestic institutional investors buy the claims from the beneficiaries.

The oil marketers stopped importing petroleum products because of the arrears, which consist largely of fuel subsidy reimbursements.

Notes have been issued for a total of N166bn for non-oil exporters, which covers some non-payment of the export expansion grant. There has been a trend increase in non-energy exports from US$2.56bn in 2016 to US$10.32bn in 2019 although the negative impact of the Covid-19 virus is now visible.

Arrears to local contractors have not yet been securitized in this programme. In the final 2020 budget we see a N8bn capital item for the FGN to settle the claims of such creditors.

Under recurrent items we also note allocations to clear pension arrears due to military and civilian personnel, terminal benefits to former employees of the long-defunct Nigeria Airways and arrears in kind (vehicles owed to retirees). These allocations approach N50bn in total.

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