A Rise in Public Debt in Quarter Three – Coronation Merchant Bank

According to Nigeria’s Debt Management Office (DMO), Nigeria’s total public debt rose by 2.9% q/q or N1.3trn to N44.1trn at end-September ’22 from N42.8trn at endJune ’22. On a y/y basis, total public debt increased by 16.1%.

As at end-September’22, public debt is equivalent to 25.4% of 2021 nominal budget. This is relatively low when compared with other African emerging economies such as Egypt (87%), Ghana (82%), South Africa (69%), and Kenya (68%). 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 2.7% q/q and 20.1% y/y to N26.9trn as at end-September ’22. This can be partly attributed to increases in FGN Bonds (3.9% q/q), NTB’s (0.8% q/q) and FGN savings Bond (19.6% q/q).

For domestic debt, FGN instruments accounted for 75.6% of total domestic debt while subnationals accounted for 19.9%. Bonds and NTBs accounted for 94% of total FGN domestic debt while FGN sukuk, treasury bond, savings bond, green bond and promissory notes collectively contributed to 5.7% of the total.

Domestic debt for states, the FCT inclusive, increased by 1.9% q/q to N5.4trn at endSeptember ’22 from N5.3trn recorded in the previous quarter. On a y/y basis, it rose by 27.7%. The most indebted states include Lagos (N877bn), Delta (N272bn), and Ogun (N242bn).

The FGN has raised c.N24trn via the CBN’s ways and means advances and has hinted at a proposal to securitize the advances through the local debt capital market. Total domestic debt is likely to increase if the planned securitisation materialises and in addition to AMCON debt.

External debt stock stood at USD39.7trn (N17.1trn) as at end-September ’22. This represents a marginal decline of 1% or USD403m q/q. The sustained elevated external debt figures can be partly attributed to upticks in loans from the International Development Association (3.9% q/q), and China (13.8% q/q).

Furthermore, the marginal decline in the external debt stock reflects Nigeria’s absence from the international capital market, due to the hawkish monetary policy stance adopted by the central banks across several advanced economies. Overall, the external debt stock accounts for 38.6% of total public debt.

Within the external debt, multilateral lenders such as the World Bank, IMF, African Development Bank Group (AfDB) and bilateral lenders like China, Germany, Japan, India and France accounted for 56.4%, while commercial loans (i.e. Eurobonds and Diaspora) represent 39.4% of total external debt.

As at end-September, the FGN has spent N3.09trn on debt servicing (N2.2trn on domestic debt servicing and N890bn on external debt servicing) compared with the budgeted N3.95trn for debt servicing in the FGN’s 2022 budget. It is worth highlighting that the debt-service-to-revenue ratio stood at 83% as at August ’22.

Underperformance with revenue generation continues to hamper the country’s fiscal landscape. The increase in the total debt stock can be partly attributed to new borrowings by the FGN for deficit financing. Strategic steps towards improving non-oil revenue such as improving tax collection efficiency, incorporating more informal businesses into the tax net and strengthening anti-smuggling measures should be prioritized.

The effective implementation of the strategic revenue growth initiatives would assist in boosting revenue, strengthening the fiscal landscape and will support real GDP growth.