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Still a Good Story for the Domestic Debt Stock

Proshare

Wednesday, November 22, 2017 9:20AM /FBNQuest Research


The FGN’s domestic debt stock amounted to N12.50trn (US$40.8bn) at end-September, equivalent to 12.3% of 2016 GDP. The increase of N470bn in Q3 is largely accounted for by a rise of N290bn in the stock of FGN bonds and Nigeria’s maiden sukuk issuance of N100bn. 

The domestic debt stock/GDP ratio is very healthy for a sovereign rated B+/B. It is a core element of the FGN/DMO narrative in the current Eurobond roadshow. Investors will see that the stock has nonetheless grown by N5.47trn in just four years. 

To expand federal into public domestic debt, we have to add: the bank borrowings of state governments, which the DMO estimated at N3.18trn at end-June, their outstanding bonds, the bonds issued by AMCON, and the debts of the NNPC and other public agencies.

There is also the grey area of FGN debts to contractors and other private- sector players incurred by the previous administration and unearthed by the finance ministry last December. The total was initially estimated at N2.2trn although we have seen figures up to N3.4trn. These claims are to be verified and then securitized. Their inclusion would push up the public domestic debt stock to around 25% of 2016 GDP. 

This is the worst-case scenario. In line with established practice, it excludes the CBN’s many credit lines and the FGN’s contingents such as guarantees. 

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The FGN has the approval of the National Assembly to refinance maturing NTBs into short-term external debt up to a ceiling of US$3bn. The modalities are still under discussion but there are obvious benefits for the overall debt service burden as well as yields on naira-denominated FGN paper. 

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