An Explained Increase in Domestic Debt Service in Q3 2021


Thursday, January 20, 2022 / 10:05 AM / by FBNQuest Research / Header Image Credit: FBNQuest Research


The DMO's latest quarterly data show a 34% y/y increase in the FGN's domestic debt service, to hit a new high of NGN808bn in Q3 '21. The debt service payments peak in the first and third quarters of the year, when the issuance of FGN bonds has been concentrated. The surge in domestic debt service recorded in Q3 was largely as a result of principal repayments in July '21 worth c. NGN130bn. The stock of total domestic debt increased by 3.4% over the same period, and of FGN bonds by 1.6%. 


Domestic payments accounted for 52% of total debt service as at November '21. The figure rises to 60% if we include interest payments on the FGN's ways and means advances from the CBN.


The decline in service payments for NTBs (Nigerian T-bills) continued in Q3. We saw a -73.1% y/y decline to NGN26bn.


Nigeria's heavy debt service bill is a weak point in its credit story, particularly as government revenue took a hit because of the pandemic and its accompanying restrictions on economic activities. The government has consistently opined that the country's challenge in this regard is not one of debt, but of revenue. Nigeria's total debt service-to-revenue ratio stood at 76% as at November '21.


The country's total debt-to-GDP ratio was put at 30% as at September '21. This is significantly lower than the World Bank's recommended threshold of 64% for emerging markets. In the November edition of its Nigeria Development Update, the Bank stated that while Nigeria's debt-to-GDP is still considered sustainable, any macro-fiscal shock could push debt to unsustainable levels. The government's explanation for its burgeoning debt is that it has had to spend its way out of two recessions in five years.


The NGN17.13trn appropriation bill signed into law last month shows a projection of NGN3.88trn for total debt service, consisting of NGN2.51trn domestic, NGN1.1trn external and NGN270.1bn for sinking fund contributions. We suspect that the domestic component includes payments on ways and means advances.


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