Economy

A Healthy Ratio for the Public Debt Stock – Coronation Merchant Bank

Published

2 years ago

June 24, 2022

According to Nigeria’s Debt Management Office (DMO), Nigeria’s total public debt rose by 5.2% quarter on quarter (q/q) or N2 trillion from N39.5 trillion at end-December 2021 to N41.6 trillion at end-March 2022. The total public debt increased by 25.7% or N8.5 trillion when compared to the corresponding period in 2021.

As at end-March 2022, public debt is equivalent to 24% of 2021 nominal GDP, relatively low when compared with other African economies such as Ghana (80%), Kenya (68%), South Africa (70%) and Egypt (93%). This is in line with the DMO’s debt management target of a debt-to-GDP ratio of 40% 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.

Total domestic debt increased by 5.4% q/q and 21.1% year-on-year to N24.9 trillion as at end-March 2022. This can be attributed to increases in FGN bonds (2% q/q), Nigerian treasury bills (16% q/q) and FGN Savings bond (10.3% q/q). The total domestic debt currently accounts for 60% of total public debt.

Within domestic debt, FGN instruments account for 80.6% of total domestic debt, while subnationals represent 19.4%. Bonds and NTBs account for 92.6% of total FGN domestic debt while FGN sukuk, treasury bond, savings bond, green bond, and promissory notes collectively contributed 7.4% to the total.

Based on the DMO’s bond issuance calendars, the debt management office set out to raise a total volume of between N1.1 trillion – N1.2 trillion in H1 ‘22. However, the DMO has raised N1.8 trillion in the first half of the year. This is 50% higher than the set upper limit within the calendar for this timeframe. In our view, the increased supply of FGN bonds should lead to upticks in yields across the curve.

The share of states and the FCT’s domestic debt increased by 8.6% q/q to N4.8 trillion as at end-March 2022 from N4.5 trillion recorded in the previous quarter. On a y/y basis, it increased by 17.5%. The most indebted states were Lagos (N780bn), Ogun (N242bn) and Rivers (N226bn).

We note 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-April ‘22, the stock of CBN’s ways and means advances stood at N16.6trn.

External debt stock stood at USD39.9bn (N16.6trn) as at end-March ‘22. This represents increases of 4.8% q/q and 33.3% year-on-year. The rise can be partly attributed to the USD1.25bn Eurobond issued by the FGN in March 2022. As at Q1, the external debt stock accounts for 39.9% of total public debt.

Within external debt, multilateral, and bilateral loans account for 58.7%, while commercial loans (i.e., Eurobonds and Diaspora bond) represent 39.8%. As at end-March ’22, Nigeria spent N669bn on servicing domestic debt, and N229bn on external debt servicing.

Based on newswires, the FGN suspended its plans to raise an additional Eurobond worth USD950m. The suspension is due to unfavourable market conditions. We note that yields in Nigeria’s Eurobond market have recorded steady upticks on the back of recent monetary policy tightening in advanced economies.

Based on World Bank estimates, each state is expected to record a loss of N5bn in revenue this year. The projected loss is on the back of an expected decrease in Federal Accounts Allocation Committee (FAAC) payouts to states. The Nigerian National Petroleum Corporation has deducted N947.5bn from its remittance to FAAC between January -April 2022. Furthermore, the World Bank considers Nigeria’s public debt as sustainable and projects that it will account for 36% of GDP in 2022.

We suspect that this figure is inclusive of CBN’s ways and means as well as AMCON debt.

Insufficient revenue continues to hamper Nigeria’s fiscal landscape, resulting in one of the highest debt-service-to-revenue ratio (76% as at November ’21) among African economies. Regarding oil revenue, the presence of the fuel subsidy and low oil production continue to undermine the expected benefits from rising oil price (Bonny light closed at USD127/b on 21 June ‘22). Meanwhile, production has averaged 1.5mbpd between January – May’22. This is below OPEC’s quota of 1.7mbpd and the 2022 budget of 1.6mbpd.

On non-oil, the FGN is taking forward steps towards boosting non-oil revenue through strategic initiatives under the Finance Act. While these initiatives are laudable, their effective implementation is critical. To assist with improving current macroeconomic conditions, the borrowed funds need to be channelled towards well-targeted expenses that would support GDP growth, ease supply-chain bottlenecks and reduce the pressure on the country’s unemployment rate.

Up Next

Bread Producers to Commence Strike on July 13, 2022

Don't Miss

U.S. Manufacturing Index Heightens Recession Fear

Samed Olukoya

Is the CEO and Founder of Investors King Limited. He is a seasoned foreign exchange research analyst and a published author on Yahoo Finance, Business Insider, Nasdaq, Entrepreneur.com, Investorplace, and other prominent platforms. With over two decades of experience in global financial markets, Olukoya is well-recognized in the industry.

Comments

Economy

FIRS VAT Revenue Surges to N1.56 Trillion in Q2 2024 Amid Economic Struggles

Published

9 hours ago

September 10, 2024

Samed Olukoya

The Federal Inland Revenue Service (FIRS) generated N1.56 trillion in Value Added Tax (VAT) in the second quarter (Q2) of 2024, according to the latest report from the National Bureau of Statistics (NBS).

This represents an increase of 9.11% compared to the N1.43 trillion reported in the first quarter of 2024.

A breakdown of the report showed that local VAT payments accounted for N792.58 billion of the total amount generated, while foreign VAT payments stood at N395.74 billion, and import VAT contributed N372.95 billion.

A quarterly analysis of the report revealed that human health and social work activities recorded the highest growth rate with 98.44%. This was followed by agriculture, forestry, and fishing with 70.26%, and water supply, sewerage, waste management, and remediation activities with 59.75%.

On the other hand, activities of households as employers and undifferentiated goods- and services-producing activities of households for own use had the lowest growth rate with –46.84%, followed by real estate activities with –42.59%.

Sectoral analysis showed that the manufacturing sector contributed the most at 11.78%. Information and communication and mining and quarrying contributed 9.02% and 8.79%, respectively.

Nevertheless, activities of households as employers and undifferentiated goods- and services-producing activities of households for own use recorded the least share with 0.00%, followed by activities of extraterritorial organizations and bodies with 0.01%, and water supply, sewerage, waste management, and remediation activities and real estate services with 0.04% each.

On a year-on-year basis, VAT collections grew by 99.82% from Q2 2023 despite ongoing economic challenges.

Nigeria’s inflation rate remains well above 30 percent, while new job creation is almost nonexistent.

Other key economic factors, such as investor sentiment, the purchasing managers’ index, and consumer spending, remain weak amid intermittent protests by citizens demanding improvements in quality of life.

Economy

Nigeria Sees 9.11% Increase in VAT Revenue, Generating N1.56 Trillion in Q2 2024

Published

1 day ago

September 9, 2024

Investors King

The federal government in the second quarter of 2024 generated a total of N1.56 trillion from Value Added Tax. This is a 9.11 percent increase from the N1.43 trillion in Q1 2024.

According to the National Bureau of Statistics report, local payments recorded were N792.58 billion, foreign VAT payments were N395.74 billion, while import VAT contributed N372.95 billion in Q2 2024.

“On a quarter-on-quarter basis, human health and social work activities recorded the highest growth rate with 98.44%, followed by agriculture, forestry and fishing with 70.26%, and water supply, sewerage, waste management and remediation activities with 59.75%,” NBS reported.

“On the other hand, activities of households as employers, undifferentiated goods and services producing activities of households for own use had the lowest growth rate with 46.84%, followed by Real estate activities with 42.59%.

“In terms of sectoral contributions, the top three largest shares in Q2 2024 were
manufacturing with 11.78%; information and communication with 9.02%; and Mining and quarrying with 8.79%.

“Nevertheless, activities of households as employers, undifferentiated goods- and services-producing activities of households for own use recorded the least share with 0.00%, followed by activities of extraterritorial organisations and bodies with 0.01%; and Water supply, sewerage, waste management and remediation activities with and real estate services 0.04% each.

“However, on a year-on-year basis, VAT collections in Q2 2024 increased by 99.82% from Q2 2023.”

Economy

Finance Minister Denies VAT Hike, Confirms Rate Remains at 7.5%

Published

1 day ago

September 9, 2024

Investors King

Minister of Finance and Coordinating Minister of the Economy, Mr Wale Edun, on Monday, debunked reports doing the rounds that the rate for Value-Added Tax (VAT) has been upwardly adjusted to 10% from 7.5%.

The Minister, in a statement signed by him, affirmed that VAT rate as contained in relevant tax laws and chargeable on goods and services remains 7.5%.

“The current VAT rate is 7.5% and this is what government is charging on a spectrum of goods and services to which the tax is applicable. Therefore, neither the Federal Government nor any of its agencies will act contrary to what our laws stipulate.

“The tax system stands on a tripod, namely tax policy, tax laws and tax administration. All the three must combine well to give us a sound system that gives vitality to the fiscal position of government.

“Our focus as a government is to use fiscal policy in a manner that promotes and enhances strong and sustainable economic growth, reduces poverty as well as makes businesses to flourish.

“The imputation in some media reports on the issue of VAT and the opinion articles that have sprouted from them seem to wrongly convey the impression that government is out to make life difficult for Nigerians. That is not correct. If anything, the Federal Government has, through its policies, demonstrated that it is committed to creating a congenial environment for businesses to thrive.

“In fact, it is on record that the Federal Government, as part of efforts to bring relief to Nigerians and businesses, recently ordered the stoppage of import duties, tariffs and taxes on rice, wheat, beans and other food items.

“For emphasis, as of today, VAT remains 7.5% and that is what will be charged on all the goods and services that are VAT-able,” Edun said