March 19, 2020 /10:29 AM / by FBNQuest Research / Header Image
A rising proportion of the FGN's domestic debt consists of promissory notes issued to clear arrears. These notes amounted to N968bn (US$2.64bn) at end-February or about 6% of the burden and could rise to a maximum of N2.7trn, dependent upon the verification of claims by the DMO and the National Assembly. On maturity, they will bring a sizeable cash injection into the economy.
The longest tenor is five years. Generally, the notes have maturities of two to three years.
The three largest categories of creditor are all in need of the cash injection. State governments, the largest, are to receive N488bn in total, starting at end-2020. To put the inflows into context, their aggregate internally generated revenue, admittedly not their major income source, reached N986bn in January-September 2019 according to the National Bureau of Statistics.
The oil marketers, the second category, broadly stopped importing petroleum products because of the arrears.
Non-oil exporters are due N145bn on the maturity of the notes. Their export receipts are rising from a low base and reached a provisional US$5.4bn last year. Non-payment of the export expansion grant and, more recently, the land border closures have dented the efforts of exporters.
FGN pro-notes by creditor category (Feb 2020; % shares)
Sources: Debt Management Office (DMO); FBNQuest Capital Research
The 2020 budget provides for tax credits for non-oil exporters totaling N2.5bn in the form of negotiable certificates. We note, however, that budget spending is to be reviewed in the light of the crashing oil price.