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Still healthy debt stock ratios

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Friday, September 23, 2016 9:05am / FBNQuest Research

The latest report from the DMO shows FGN debt at end-June at N13.79trn (then US$55.6bn), equivalent to 14.6% of 2015 GDP. This compares with N10.95trn (US$48.7bn) at end-December, representing 11.6%.

The sizeable increase of N2.84trn in just six months is divided between N1.76trn domestic, reflecting acceleration in debt issuance, and N1.08trn external, driven largely by the devaluation.

Nigeria would soon lose its enviable debt stock ratios if the rise of three percentage points in six months was sustained. We should add that the currency has lost ground since end-June.

The devaluation has had the result of pushing the domestic/external mix of the FGN’s debt a little towards the target of 60/40 in the DMO’s medium-term strategy. The ratio stood at 77/23 in June.

The intended route to the target, of course, was via higher issuance in foreign currency (than local) with stable exchange rates.

The data in the chart exclude the FGN bonds (Jul ‘34s) totaling N680bn issued within the restructuring of state governments’ bank borrowings.

The debt stock ratios quoted cover federal government, rather than total public debt. The latter measure would have to include the naira borrowings of state governments (N2.50trn according to the DMO as at end-December), the obligations of AMCON, the NNPC and other agencies, and arrears due to contractors.

The ratio under this fullest definition could approach 25% of GDP, which would still compare favourably with most emerging markets.

This is one of the positives underpinning Nigeria’s sovereign credit ratings (B+ from Fitch and the equivalent from Moody’s, and B from S&P).

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