A Further Fall in Domestic Debt Payments


Wednesday, February 05, 2020 10:24 AM / FBNQuest Research / Header Image Credit: Ghana Business News


The FGN's bill for domestic debt service totaled N607bn in Q3 2019, compared with the year-earlier figure of N634bn. This was the fourth successive quarterly decline on a y/y basis. Externalization (ie the deployment of Eurobond proceeds to pay down maturing NTBs) has played its part. Nor should we overlook the downward trend in rates, which will become highly visible in the DMO's data releases for Q4 2019 and the current quarter. On these grounds, the data are the riposte to the argument that the FGN is suffocating under its debt obligations.


The movement in interest rates suggests that there is a fair bit of headroom in the budget and medium-term framework projections for total debt service (TDS; excluding sinking fund contributions) of N2.45trn this year, N2.74trn in 2021 and N2.94trn in 2022. Domestic payments account for about 85% of total debt service.


The movement in rates will compensate in part for pitifully low revenue generation. Total inflows to the FGN budget picked up from N2.66trn in 2017 to N3.87trn in 2018 according to the Budget Office of the Federation, and to N4.25trn in January-September 2019 per the approved 2020 budget.


That budget has total inflows at N7.60trn. TDS would represent 32.2% of these inflows. The reality is that both projections appear too high: the first due to interest rate assumptions and the second to over-optimism.


FGN domestic debt service payments (N bn)

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Sources: Debt Management Office (DMO); FBNQuest Capital Research



The total for domestic debt payments in Q2 2019 has been revised upwards to include a principal payment of N25bn on Treasury bonds, which are not traded and were issued by the military government.


The payments peak in the first and third quarters, when the issuance of FGN bonds is concentrated.

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