Interest Rate on Nigeria’s Total Public Debt Moderates
Patience Oniha, Director-General, Debt Management Office

Interest Rate on Nigeria’s Total Public Debt Moderates

In the fiscal year 2020, implicit interest rate on Nigeria’s total public debt moderated to 7.41%, Cowry Asset Management says in a new report.

The reduction in rate paid to local creditors via the fixed income market instruments sold was among the major driver of the moderated debt service cost.

Regarded by some pundit as financial repression, fixed income investors have been mostly negative as inflation rate outpaced yields on government instrument.

However, from the beginning of 2021, the Nigerian debt market has been tightened as market participants demand for higher yields amidst plan to fund budget deficit with local borrowings.

From less than 1% late December, average yields on Nigerian treasury bills has made an upward swing to 4% on Thursday, while yields on bonds expanded to average of 10%.

The investment firm’s debt watch report for noted the moderation in the implicit interest rate on total borrowings to 7.41% in 2020 amid increased concessionary loans -especially from IMF and AfDB – and low domestic interest rate environment.

According to Debt Management Office (DMO), Nigeria’s total public debt stock surged by 20.12% to N32.92 trillion as at December 2020 from N27.40 trillion as at December 2019.

The increase in the country’s total debt stock was chiefly due to a 40.82% rise in external debt to N12.71 trillion (or USD33.35 billion at N381.00/USD) as at December 2020 from N9.02 trillion (or USD27.68 billion at N326.00/USD) in December 2019 – essentially multilaterals.

Nigeria received USD3.54 billion worth of loans from the International Monetary Fund (IMF), USD2.86 billion from African Development Bank (AfDB) and additional loan of N1.43 billion from International Development Association (IDA) within the period.

Cowry Asset Management said the depreciation of the Naira against the greenback exacerbated external debt; year-on-year.

This comes as Naira depreciated against the United States dollar (USD) by 16.87% to close at N381/USD as at December 2020.

Hence, external debt service payments rose to N560.36 billion (or USD1.51 billion) in 2020 from N414.00 billion (or USD1.33 billion) printed in 2019.

Analysts stated that given the sustained rise in external debt and the drop in total exports, the stock of external debt as a percentage of exports jumped to 101.25% in 2020 from 47% in 2019.

Further breakdown of the total external debt stock in 2020, showed that multilateral loan accounted for 53.78% (USD17.93 billion) of which loans from International Development Association (IDA) was USD11.12 billion while loan from IMF was USD3.54 billion.

Bilateral loan accounted for 12.17% (USD4.06 billion) of which loan from China (Exim Bank of China) was USD3.26 billion while loan from France was USD0.50 billion in 2020.

DMO record indicates that commercial loans accounted for 34.05% (USD11.36 billion) of which Eurobonds was USD10.87 billion while Diaspora bond was USD0.30 billion.

However, analysts added that local debt stock increased by 9.96% to N20.21 trillion in 2020 from N18.38 trillion in 2019.

Breakdown of the domestic debt figure showed that FG’s domestic debt stock rose to N16.02 trillion in 2020 from N14.27 trillion in 2019.

As a result, domestic debt service payment increased by 13.25% to N1.88 trillion in 2020 from N1.66 trillion recorded in 2019.

“We note the moderation in the implicit interest rate on total borrowings to 7.41% in 2020 amid increased concessionary loans (especially from IMF and AfDB) and low domestic interest rate environment in 2020.

“However, given the recent trend reversal in domestic interest rates in 2021, we expect an upward pressure on debt service as a percentage of FGN retained revenue which grew to 51.31% in 2020 from 36.67% in 2019.

“Expected improvement in government revenue, especially from crude oil sales, could help boost Nigeria’s debt profile”, Cowry Asset stated.

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Interest Rate on Nigeria’s Total Public Debt Moderates