Nigeria Economy | |
Nigeria Economy | |
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PROSHARE | |
PROSHARE |
Tuesday,
September 15, 2020 / 12:29 PM / By FBNQuest Research / Header Image Credit: FBNQuest
The
latest data release by the DMO shows us that the FGN's domestic debt service
totaled N313bn in Q2 2020, compared with the year-earlier figure of N215bn. The
quarterly costs had stabilized but we can trace the increase to the semi-annual
coupon payments on the 14.55% Apr '29s and the 14.80% Apr '49s that were issued
in April 2019. Issuance continues to pick up because the DMO is required to
raise N1.60trn (gross) from domestic sources towards the financing of the 2020
budget deficit, and because the monthly bond auctions are the largest source.
That budget projects domestic debt service payments of N1.87trn this
year (excluding sinking fund transactions). The H1 figure of N920bn suggests
that the projection is at best sound.
Falling rates obviously favour the FGN, and the outcome for the full year
may still come in ahead of target. If we take a mid-curve bond such as the Mar '27s, we see that the average yield in the market has narrowed from 14.4% in Q2
2019 to 10.8% in Q2 2020. The decline over the same period for the 364-day NTB
at auction has been far sharper, from 14.3% to 4.0%.
Analysts focus on debt service in Nigeria because of the pitiful record
for revenue generation. The latest outturn (2019) gives us a ratio of 51.2% for
total debt service/total inflows. The official projections show an improvement
to 48.3% this year. The double blow of the Covid-19 virus and the plunging oil
price will surely bring lower, not higher revenue collection.
FGN domestic debt service payments
(N bn) |
|
Sources:
Debt Management Office (DMO); FBNQuest Capital Research |
Domestic payments accounted for 79% of total debt service in 2019.
Despite this latest increase, the payments peak in the first and third quarters, when the issuance of FGN bonds is concentrated.
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