Spotlight on Nigeria’s Public Debt Stock – Coronation Merchant Bank
According to Nigeria’s Debt Management Office (DMO), Nigeria’s total public debt rose by 4.1% or N1.5trn from N38trn at end-September ‘21 to N39.5trn at end-December 2021. The total public debt increased by 20.2% or N6.6trn when compared to the corresponding period in 2020. As at end-2021, public debt is equivalent to 22.5% of 2021 nominal GDP.
This is in line with the DMO’s debt management target of a debt-to-GDP ratio of 40% of GDP for the period 2020-2023 and below the limit of 55% set by the World Bank for countries within Nigeria’s peer group. It is also below the 70% set by the Economic Community of West African States. According to the DMO, disbursements by multilateral
and bilateral creditors account for a significant portion of the increase in the debt stock.
Total domestic debt increased by 17.3% y/y from N20.2trn in 2020 to N23.7trn at end2021. This constitutes 59.9% of total public debt. On a q/q basis, it increased by 5.7%, on the back of increased issuances of FGN bond and Nigerian treasury bills (NTBs) in Q4 ’21.
In terms of composition, FGN domestic debt constitutes 81.2% of total domestic debt, while states and FCT make up the remaining 18.8%. Bonds and NTBs make up 92.2% of total FGN domestic debt while FGN sukuk, treasury bond, savings bond, green bond, and promissory notes make up the remaining 7.8%.
The share of states and the FCT’s domestic debt increased by 6.2% q/q to N4.5trn from N4.2trn at end-September ‘21. On a y/y basis, it increased by 6.5%. The most indebted states were Lagos (N658bn), Ogun (N232bn) and Rivers (N225bn).
Coronation Merchant Bank notes that with the securitisation of the ways and means advances from the CBN and the addition of AMCON debt, the domestic debt stock is likely to increase. As at end-2021, the stock of CBN’s ways and means advances stood at N13.3trn.
External debt stock stood at USD38.3bn (N15.8trn) at end-2021. This points towards increases of 1.8% q/q and 24.7% y/y. The rise was largely due to the USD4bn Eurobonds issued by the FGN in September ’21, as part of new external borrowing in the 2021 appropriation act.
The external debt stock accounts for 40.1% of total public debt. Multilateral and bilateral loans account for the bulk of the external debt at 60.2%, while commercial loans and promissory notes represent the remaining 39.8%.
Insufficient revenue continues to hamper Nigeria’s fiscal landscape, resulting in one of the highest debt-service-to-revenue ratio among African economies.
Nigeria spent N2.9trn on servicing domestic debts, and N877.5bn on external debt servicing. As at November ’21, the FGN’s debt service to revenue ratio was 76%.
The FGN’s 2022 aggregate expenditure is estimated at N17.1trn. Revenue is expected to be N10.7trn, and the deficit of N6.4trn is expected to be financed by foreign borrowings of N2.57trn, domestic borrowings of N2.57trn, privatisation proceeds of N90.7bn, and multi-lateral /bi-lateral loan drawdowns of N1.16trn. We note that the 2022 FGN budget contains a provision of N443bn for subsidy for January-June. President Buhari is seeking approval of an additional N2.5trn supplementary budget to cater for fuel subsidy.
Last week, The DMO announced that Nigeria raised USD1.25bn (N520bn) through Eurobonds. This makes Nigeria the first African country to access the international capital market (ICM) in 2022. The order book reached USD3.7bn. It included quality investors across the United States, Europe, and Asia. According to the DMO, the proceeds of the Eurobond will be used to finance critical capital projects in the budget. Additionally, it would
contribute directly to external reserves.
Despite the increase in the total public debt stock, as a percentage of GDP (22.5%), this is relatively low when compared with other African economies such as Ghana (81%), Kenya (65%), South Africa (80%) and Egypt (90%). The onus is on the FGN to ensure that borrowed funds are used productively.
Coronation Merchant Bank notes the FGN’s strategic revenue growth initiatives such as the Finance Act and other measures aimed at leveraging technology and automation in improving tax administration, as well as the introduction of a pro-health tax (excise duty on carbonated drinks). These among others are geared towards improving government revenue.
Return to Trade Surplus in 2022
By Coronation Merchant Bank Economic Research
The latest report from the National Bureau of Statistics (NBS) in its series on foreign trade in goods shows the total value of trade declined by -4.5% q/q to N11.7trn in Q4 ’22. This is the third consecutive q/q decline recorded. On a y/y basis, it rose marginally by 0.1%.
The total export value increased by 7.2% q/q to N6.4trn compared with N5.9trn recorded in Q3’22 while the import value declined by -15.5% q/q to N5.4trn from N6.3trn. The net result was a surplus of N996.8bn vs a deficit of -N409.4trn recorded in Q3 ‘22. Total trade as a percentage of nominal GDP (2022) stood at 5.9% in Q4 ’22 compared with 6.2% recorded in Q3 ’22.
For FY2022, the total value of trade was N52.4trn compared to N39.7trn recorded in FY2021. Total export value for FY2022 increased by 41.7% y/y to N26.8trn. Meanwhile, import value also increased by 22.7% y/y to N25.6trn in 2022 from N20.8trn recorded in 2021. The net result was a surplus of N1.2trn compared with a deficit of -N1.9trn recorded in FY2021. Total trade as a percentage of nominal GDP (2022) stood at 26.3% in 2022 vs 22.9% recorded in 2021, (using 2021 nominal GDP).
According to the NBS, most imports in Q4 ’22 originated from China (N1.4trn). This was followed by Belgium (N585.6bn), India (N368.9bn), Netherlands (N365.3bn), and the United States (N319.2bn). These five countries collectively accounted for 55.8% of the total imports in Q4 ’22. The value of imported manufactured products and oil-related products declined by -14.3% q/q and -18.2% q/q respectively.
Imported agricultural goods also declined by -13.3% q/q.
Imports from the Economic Community of West African States (ECOWAS) stood at N55.4bn in Q4 ‘22, accounting for 30.7% of total imports within the region. Regarding export destinations, Spain (N617.2bn) was the top exporting partner for Nigeria in Q4 ’22, followed by the Netherlands (N517.6bn), India (N490.4bn), France (N489.8bn) and Indonesia (N473.3bn). These five countries collectively accounted for 41.6% of the total exports in Q4 ’22.
Crude oil accounted for the largest share (77.8%) of total exports in Q4 ’22 and increased by 5.4% q/q to N4.9trn in Q4 ’22 compared with a decline of -21.2%q/q recorded in the previous quarter. The q/q increase in the value of total crude exported can be partly attributed to improved oil production due to the FGN’s recent efforts towards tackling crude oil theft and vandalism.
Based on data from the NBS, average crude oil production (condensates inclusive) in Q4 was 1.34mbpd compared with 1.20mbpd in the previous quarter and 1.50mbpd in Q4 ‘21. This is lower than the OPEC production quota for Nigeria pegged at 1.8mbpd and the FGN’s production benchmark of 1.7mbpd.
As for non-oil exports, superior quality cocoa beans, sesamum seeds, cashew nuts in shell, superior quality cocoa, other frozen shrimps and prawns, shelled cashew nuts, crude palm kernel oil, natural coca butter, ginger and soya beans featured as the top export commodities in Q4 ’22.
Nigeria exported goods worth N553.7bn to fellow members of the ECOWAS in Q4 ‘22, compared with N507.9bn in Q3 ’22. This represented 58.7% of total exports within Africa.
The most active port during the period was the Apapa Port. Goods worth N5.8trn exited the country through this port and accounted for 91% of total exports. Other ports widely used include Port Harcourt (N341.9bn) and Tin can Island (N159.3bn).
Global/Regional in focus
According to data from the World Trade Organization (WTO), merchandise trade increased by 13.4% y/y or USD1.5trn to USD12.8trn in Q3 ’22 compared with USD11.2trn recorded in the corresponding period of 2021. Meanwhile, on a q/q basis, total merchandise trade declined marginally by -0.9% reflecting disruptions in supply chains due to the impact from the ongoing Russian-Ukraine crisis and a slowdown in economic
activities on the back of global recession concerns triggered by rising inflation and monetary policy tightening in both advanced and emerging economies.
We understand that Russia has agreed to extend the Black Sea Grain deal for an additional 60 days (2 months) after uncertainties regarding the continuity of the initiative mounted as the original expiration date of 18 March ’23 drew near. According to data from the United Nations, c.24.1 million tonnes of grains (corn, wheat, barley, sunflower oil among others) have been exported through 1600 vessels to both advanced and emerging economies, highlighting the vital role that the Black Sea Initiative has played in promoting global food security.
Turning to China, merchandise exports to other countries increased by 6.6%q/q to USD970.6bn in Q3 ’22 compared with USD910.4bn recorded in Q2 ’22. We note that the Chinese authorities have phased out the zero-covid policy and reopened the economy. As evidenced by the growth recorded in China’s PMI (52.6 as at February ’23 vs 50.1 recorded in January ’23), the reopening is expected to spur economic activities and minimize production disruptions in the manufacturing sector.
US Central Bank Raises Interest Rates by 25 Basis Points Despite Bank Crisis
The Federal Reserve on Wednesday raised interest rates by 25 basis points to a range of 4.75% to 5% in the United States despite the recent collapse witnessed in the banking sector.
Two notable banks, Silicon Valley Bank and Signature Bank collapsed this month as high-interest rates and other economic challenges created by growing uncertainty in the sector forced them out of business.
At the Federal Open Market Committee (FOMC) meeting held on Wednesday, Federal Reserve Chair Jerome Powell explained that the nation’s financial conditions seem to have tightened more than benchmark indexes are showing.
“The traditional indexes are focused a lot on rates and equities, and they don’t necessarily capture lending conditions,” Powell said when asked what financial situation would warrant an interest rate cut, especially if credit conditions were to further tighten.
If tighter lending conditions are sustained, Powell acknowledged that could easily have a significant macroeconomic impact which would be factored into the Fed’s policy decisions.
“The question for us though is how significant will that be and what would be the extent of it and what would be the duration of it,” he said, adding that “rate cuts are not in our base case.”
In Nigeria, the story is not different as the Central Bank of Nigeria (CBN) led monetary policy committee raised the benchmark interest rate by 50 basis points to 18% despite the plunge in economic activities, increase in the unemployment rate and the drop in earnings across the board.
According to the CBN, the decision was based on the nation’s rising inflation rate, economic uncertainty and challenges of increasing capital importation to the economy.
Also, the expected removal of fuel subsidy was one of the reasons given for the increase. The apex explained the increase in pump price by about 100% would further bolster the already heightened inflation rate if not checked.
Nigeria Spends N16.126 Billion Daily on Petrol Subsidy
Nigeria’s daily consumption of Premium Motor Spirit (PMS) commonly known as petrol has risen to 80 million litres, according to the latest data from the Nigerian Petroleum Company Limited (NNPCL).
A breakdown of the data showed that 558.83 million litres of petrol were evacuated between March 4 and 10, 2023, translating to an average daily consumption of 79.83 million litres.
In February 2023, the Group Chief Executive, NNPCL, Mele Kyari had put petrol consumption at around 66 million litres of petrol and declared that the corporation was spending about N202 on every litre of PMS consumed across the country.
“Today, by law and the provisions of the Appropriation Act, there is a subsidy on the supply of petroleum products, particularly PMS imports into our country. In current data terms, three days ago, the landing cost was around N315/litre.
“Our customers are here; we are transferring to each of them at N113/litre. That means there is a difference of close to N202 for every litre of PMS we import into this country. In computation, N202 multiplied by 66.5 million litres, multiplied by 30 will give you over N400bn of subsidy every month,” the GCEO had stated.
Therefore, going by Kyari’s estimation that Nigeria spent N202 a litre as a subsidy will put Nigeria’s daily petrol subsidy cost at N16.126 billion and N483.769 billion per month.
However, the national petroleum corporation has been lamenting the huge resource spent on subsidizing fuel when the majority of people benefiting from it are a few criminals smuggling it to neighbouring countries.
NNPCL explained the danger of the continued practice on the corporation’s cash flow, adding that the funding had been ongoing without refunds from the Federal Ministry of Finance, Budget and National Planning, despite the fact that subsidy had been budgeted for in the Appropriation Act.
“But there is a budget provision for it (subsidy). Our country has decided to do this. So, we are happy to deliver this, but it is also a drain on our cash flow, and I must emphasize this.
“For as we continue to support this, you will agree with me that it will be extremely challenging for us to continue to fund this from the cash flow of the company when you do not get refunds from the Ministry of Finance,” Kyari had stated in Abuja.
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