Monday, March 26, 2018 /09:09 AM /FBNQuest
Research
The FGN’s total domestic debt service payments have doubled in
five years, from N701bn in 2012 to N1.48trn last year. From our chart we can
see a bunching of payments on FGN bonds, and therefore of total debt service,
in the first and third quarters.
The FGN’s budget proposals for this year project the total
excluding sinking fund contributions at N2.03trn, of which we estimate that 90%
is payable on domestic obligations. We expect an undershoot on this debt
servicing bill because we can glimpse the proverbial light at the end of the tunnel.
On the basis of total domestic
debt service payments last year and the mid-2017 stock of domestic debt, we
arrive at an average cost of borrowing of about 12.3%.
This is not to be confused with
an average interest rate. The NTBs, which account for close to 30% of the FGN’s
domestic debt stock, are discount instruments and do not pay a coupon.
The light comes from the
decline in yields on FGN paper over the past six months: of close to 650bps for
the 364-day NTBs sold at auction and by over 250bps for the July ’21 bonds sold
by the DMO.
This compression has been
driven by the FGN’s strategy of externalization of its debt. Doubters might
focus on external debt servicing costs, which averaged just 3.1% in 2017. These
ranged from 5.0% on the Eurobonds to 1.3% on African Development Bank loans.
A note to the DMO’s data sheet explains
that the FGN bonds and NTBs maturing during last year were refinanced. The only
principal payments were made on the legacy Treasury bonds.
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