Nigeria’s Debt Profile Rises to N38 Trillion in September 2021

No end in sight for Nigeria’s rising debt profile despite the country’s vast natural resources and human capital. A recent report from the country’s Debt Management Office (DMO) revealed that Nigeria’s total debt rose by N2.5 trillion or 7.2 percent from N35.5 trillion in June 2021 to N38 trillion at the end of September 2021.

On a yearly basis, total public debt grew by 17.9 percent or N5.8 trillion and it is equivalent to 24.9 percent of 2020 nominal GDP. This is within the DMO’s target of 40 percent of GDP for the period 2020 – 2023 and domestic to external debt ratio of 70:30.

In the first nine months of 2021, Nigeria spent N2.5 trillion on debt servicing payments, N1.7 trillion was spent on servicing domestic debts and N755 billion spent on external debt servicing.

As at end-September, total domestic debt was N22.4 trillion. This constitutes 59.0 percent of total public debt. On a quarterly basis, the FGN domestic debt increased by 3.1 percent from N17.6 trillion at end-Q2 to N18.2 trillion at end-Q3 ’21. This was largely due to increased issuances of FGN bond and Nigerian treasury bills (NTBs) over the three months.

In terms of composition, FGN bonds and NTBs make up 93 percent of total domestic debt while FGN sukuk, treasury bond, savings bond, green bond and promissory notes make up the remaining 7 percent.

The share of states and the FCT’s domestic debt increased by 1.9 percent from N4.1 trillion at end of June to N4.2 trillion at end-September, with Lagos (N532 billion), Akwa Ibom (N234 billion) and Rivers (N226 billion), as the most indebted states.

We note that with the securitization of the ways and means advances from the Central Bank of Nigeria (CBN), the domestic debt stock is likely to increase. As at end-October ‘21, the stock of CBN’s ways and means advances stood at N12.8trn.

During the period under review, external debt stock stood at USD37.9 billion (N15.6 trillion). On a quarterly basis, the external debt increased by 13.4 percent from USD33.5 billion (N13.7 trillion) at end-Q2. This was largely due to the USD4 billion Eurobonds issued by the FGN in September ’21 as part of the new external borrowing in the 2021 appropriation act.

Multilateral and bilateral loans make up the bulk of the external debt at 59.7 percent, while commercial loans and promissory notes make up the remaining 40.2 percent. We note that the current external debt stock constitutes 40.9% of total public debt and this exceeds the 30 percent target set by the DMO.

Turning to debt service costs, domestic debt servicing increased by 150 percent from N322 billion in Q2 ’21 to N808 billion in Q3 ’21 and external debt servicing increased by 74.2 percent from USD298.9 million (N123.8 billion) in Q2 ’21 to USD520.7 million (N215.7 billion) at end-Q3 ’21.

Although the National assembly has recently approved external borrowings of USD5.8 billion from multilateral and bilateral sources under the FGN’s 2018-2020 external borrowing (rolling) plan. We understand that the FGN is unlikely to issue additional Eurobonds this year.

The 2022 FGN budget has been pegged at N16.4 trillion. The FGN aims to earn N10.13 trillion to fund the budget and the resulting deficit of N6.3 trillion is expected to be financed by new external and domestic borrowings, privatisation proceeds, and multilateral /bilateral loan drawdowns.

As a percentage of total GDP, Nigeria’s public debt burden is relatively low compared to peer emerging market economies. The onus is on the FGN to make productive use of the borrowed funds to improve GDP growth and by extension, ensure economic development.