The Two Sides to Public Debt


Thursday, December 02, 2021 / 09:56 AM / by FBNQuest Research / Header Image Credit: moneycentral


Nigerian public debt continues to grow at a rapid rate, prompting talk of an overhang. If we look solely at the debt/GDP ratio, Nigeria is in a much better position than its EM peers. The external balance sheet is in a decent shape, which explains why the FGN carried off a successful sale of Eurobonds, raising USD4bn rather than the USD3bn on offer. When we turn to debt service in the context of revenue generation, then the picture becomes worse than its peers. The revenue collected from the non-oil economy is rising but from a very low base. The tax revenue/GDP ratio is the worst in Africa according to the World Bank. There are ways to transform collection, yet the gains can only be achieved realistically over the medium term.


The DMO last year increased the ceiling for public debt from 25% to 40% of GDP. The measure covers the external and domestic debt of the federal and state governments. The outturn at end-2020 was 21.6%. On the basis of 2020 GDP, the new ceiling allows additional borrowing of NGN23trn.  


The higher ceiling should comfortably accommodate both the FGN's ways and means advances from the CBN and the issuance of AMCON. The advances (the FGN's unauthorised overdraft) were estimated last year at NGN10trn and will be added to public debt once they have been securitised, for which the go-ahead of the National Assembly is required.


Official thinking is now that the AMCON bonds, which were initially issued by the DMO but which in their latest form are issued by the CBN, should be included in public debt.  The thinking is said to centre around the servicing of the bonds, given the 'shortfall' in the annual levy on the banks.


The new ceiling can also cover issuance within the existing securitization programme for arrears accumulated under the previous administration. At the outset the prgramme was estimated at NGN2.70trn, and issuance to date is roughly NGN1.0trn including some dollar-denominated pro-notes. The programme has considerably slowed due to the thorough procedures for the verification of claims and the likelihood that some claims are being challenged.


The most useful exercise would be an empirical assessment of the deployment of borrowed funds.  Over five years public debt has increased close to three-fold: we may want to point to the completion of several infrastructure projects but will settle for evidence of incremental improvements across the economy.


Total public and domestic debt (NGN trn; end-period)

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

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