Nigeria’s Debt Maintains Wide Fiscal Sustainability Space


November 14, 2013 / FSDH

Available data from the Debt Management Office (DMO) shows that Nigeria’s total debt stock (addition of external and domestic debts) as at September 30, 2013 stood at N8.32trn representing an increase of 10.20% from the December 31, 2012 figure of N7.55trn. A breakdown of the public debt shows that the external debt (Federal Government and States) accounted for 15.50% of the total debt stock at N1.29trn (US$8.26bn at exchange rate of 155.75/US$1), while the domestic debt stock accounted for 84.50% of the total debt stock at N7.03trn.


The external debt contributed about 13.59% to the total debt as at Q2 2013. The increase in the contribution of external debt to the total debt stock in Q3 2013, compared to Q2 2013 was due to the benign interest rate environment in the international financial system, which the Federal and State Governments utilized to their advantage. Meanwhile, the


National Debt Management Framework (2013-2017) prepared by the Debt Management Office (DMO) indicates that the acceptable optimal ratio of domestic debt to external debt by the Federal Government should be 60:40, as opposed to the current distribution of about 84:16 as at Q3 2013.


FSDH Research estimates that the public debt stock in the country as a proportion of GDP in 2013 would stand at about 20.24%. We note that the debt to GDP ratio is acceptable as it is below the applicable critical limit of 56% for countries in Nigeria’s economic peer group.


This means that Nigeria’s debt portfolio has wide fiscal sustainability space. There is a commitment by the Federal Government to ensure that the total debt stock does not exceed 40% of GDP.


Meanwhile, if we added the Asset Management Company of Nigeria’s (AMCON) bonds to the outstanding total debt, the debt-to-GDP will amount to about 34.04%, which is still below the FGN commitment of debt-to-GDP not exceeding 40%. We note that the CBN has indicated its commitment to assume the contingent liability of the AMCON bonds.


Further analysis shows that Nigeria’s total external debt stock as at September 30, 2013 stood at US$8.26bn, representing an increase of 19.36% from US$6.92bn as at June 30, 2012. The breakdown of the external debt as at end-September 2013 showed that 71.23% was owed to Multilaterals, which includes the World Bank Group,


International Fund for Agricultural Development (IFAD), African Development Bank Group (ADB), Arab Bank for Economic Development in Africa (ABEDA), International Development Bank (IDB) and Economic Development Fund (EDF); 10.29% was owed to Bilateral Parties and 18.47% was owed to others.


The DMO puts the country’s domestic debt stock at N7.03trn as at Q3 2013, up by 2.63% from N6.85trn as at June 30, 2012. The breakdown of the total domestic debt stock by instrument type as at September 30, 2013 shows that the FGN Bonds accounted for N4.22trn representing 59.93%; Nigerian Treasury Bills (NTBs) accounted for N2.48trn, representing 35.31% and Treasury Bonds (TBs) accounted for N334.56bn, representing 4.76%.


Our forecast GDP and debt stock for Nigeria in the next 3 years shows that the debt position is sustainable. In 2013, we expect the total debt to amount to about N8.42trn, with domestic debt accounting for 84.32% at N7.10trn and external debt accounting for 15.68% at N1.32trn.


      Nigeria’s debt is sustainable in the short-to-medium term
      Nigeria will continue to increase its external debt with the associated exchange rate risk
      We expect the crowding-out effect from government borrowing to be minimized, and
      We expect interest rate in Nigeria to trend down on account of declining inflation rate



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