Public Debt Accounts for 25% of Nigeria’s Nominal GDP
- External Debt Exceeds DMO target
- Analysts Express Concerns
- FG Spends N2.5 trillion to Service Debt in 9-Month
- CBN Ways & Means Nears N13 trillion in Oct, 2021
- Lagos, Akwa Ibom, Rivers Highest Indebted States
Nigeria’s total debt book is fast rising and there is no end in sight, at least with the recent approval of $5.8 billion borrowings and expectation of more borrowings coming up in 2022 to finance the budget deficit.
The total public debt of N38 trillion recorded as of the third quarter of 2021 was about 25% of Nigeria’s nominal gross domestic product recorded in 2020, according to Coronation Chief Economist macroeconomic note.
While debt profile is growing, Nigeria’s infrastructure base has not seen significant improvement – majorly directed to roads, rails while capital expenditure in the healthcare, education sectors, others remain unimpressive.
The next President after the incumbent is likely to have lesser space in the local and international capital market for more borrowings, a move to ensure the next President has lesser funding to play with.
In the third quarter report, Debt Management Office (DMO) said Nigeria’s total public debt expanded by 7.2% or N2.5 trillion from N35.5 trillion at end of June 2021 to N38 trillion at end of September 2021.
The new data on Nigeria’s debt stock indicated that in 12-months, the total public debt increased by 17.9% or N5.8 trillion in absolute terms, with pressures from the devaluation of the local currency.
As at end of September 2021, the public debt is equivalent to 24.9% of 2020 nominal GDP, according to Chinwe Egwin, Chief Economist at Coronation Merchant Bank noted.
Egwin noted that this is in line with Nigeria’s debt management targets for the period 2020-2023 which raised the ceiling for public debt to 40% of GDP and targets a 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 of September, the total domestic debt portion was N22.4 trillion, according to the DMO report, accounting for 59.0% of total public debt. On a quarter on quarter basis, the FGN domestic debt has increased by 3.1% from N17.6 trillion at end of the second quarter to N18.2 trillion at end of the third quarter of 2021.
This was largely due to increased issuances of FGN bonds and Nigerian treasury bills (NTBs) over the three months, according to Coronation Chief Economist.
In terms of composition, it was noted that FGN bonds and NTBs make up 93% of total domestic debt while FGN Sukuk, Treasury bond, savings bond, green bond and promissory notes make up the remaining 7%.
The share of states and the FCT’s domestic debt increased by 1.9% from N4.1 trillion at the end of June to N4.2 trillion at the end of 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”, Coronation stated.
As of October 2021, the stock of CBN’s ways and means advances stood at N12.8 trillion. Meanwhile, during the period under review, external debt stock stood at USD37.9 billion or N15.6 trillion, according to data from DMO.
On a quarter on quarter basis, the external debt increased by 13.4% from USD33.5 or N13.7 trillion at end-Q2, 2021. This was largely due to the USD4bn 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%, while commercial loans and promissory notes make up the remaining 40.2%.
“We note that the current external debt stock constitutes 40.9% of total public debt and this exceeds the 30% target set by the DMO”.
Turning to debt service costs, domestic debt servicing increased by 150% from N322 billion in Q2-2021 to N808 billion in Q3-2021 and external debt servicing increased by 74.2% from USD298.9m (N123.8 billion) in Q2 ’21 to USD520.7m (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 loans drawdowns.
As a percentage of total GDP, Nigeria’s public debt burden is relatively low compared to peer emerging market economies, Coronation Chief Economist stated in the note.
Egwin maintains that the onus is on the FGN to make productive use of the borrowed funds to improve GDP growth and by extension, ensure economic development. #Public Debt Accounts for 25% of Nigeria’s Nominal GDP
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