Coronanomics (14) - Nigeria's Debt Profile - Swimming in Deep Waters


Saturday, June 20, 2020 / 06:00 AM / by Proshare Content/ Header Image Credit:  EcoGraphics


The latest debt data released by the Debt Management Office (DMO) shows that the country's total debt stock as of December 2019 stood at N27.4trn. The debt includes N21.7trn owed by the Federal Government and the N5.6trn owed by the different state governments.

  • The Federal Government's debts accounted for 79.59% of the country's total debt, while the states and the FCT government debt accounted for the remaining 20.41%.
  • Foreign debt accounted for 32.93% of the total debt at N9.02trn, with the Federal Government owing N7.53trn and the state governments owing N1.48trn.
  • Domestic debts accounted for the remainings 67.07%. The Federal Government had a domestic debt portfolio of N14.2trn, accounting for 52.09% of total debt stock, while the states owed N4.1trn, 14.99% of the total debt stock.

Nigeria's mounting debt stock is a major source of worry as the country carries $900bn worth of dead capital by way of the idle physical property and agricultural land. Nigeria's total debt has been increasing but factor productivity growth has slumped. The fall in productivity has meant that the Federal Government's borrowings have not added significantly to economic value. The country's debt service has continued to be a noose around its fiscal neck. Recent debt service figures suggest that the country's debt service obligation in Q1 2020 swallowed up 99.2% of the quarter's fiscal revenue. The government's response so far has been to borrow more money. To be sure digging deeper while inside a hole is not the smartest way to escape a ditch (see chart 32).

Chart 32: Nigeria's Total Debt (N'trn) 2015-2019

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Source: DMO, Proshare Research 


Nigeria's External Debt

The coronavirus pandemic will most likely worsen Nigeria's external debt position in 2020 e.g IMF recently approved Nigeria's request for emergency financial assistance of $3.4bn under the Rapid Financing Instrument (RFI) to cover financial emergencies created by the COVID-19 pandemic. Giving the fall in its oil revenue, the need to expand health infrastructures and its huge budget size, the need to seek external debt to bridge its revenue gap becomes inevitable.


Nigeria's external debt trended upwards from December 2015 to December 2019. Nigeria recorded an external debt of $27.68bn in December 2019, the highest recorded since it paid off Paris Club debt in 2006. Nigeria's external debt increased from $10.72bn in December 2015 to $27.68bn in December 2019, a growth of about +158.21%. Plausible reasons for the increase in the external debts include lower oil prices, disproportionate spending and defence of the exchange rate. The categories of the debt owed fall under Multilateral, Bilateral and Commercial loans (European and Diaspora bonds). While Nigeria's external debt to GDP remains under 10% and well below global benchmarks, the debt service commitment of about $1.5bn at the current debt levels is worrisome.


Chart 33: Nigeria's External Debt (N'bn) 2015-2019

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Source: Proshare Research, DMO


Some economic experts have argued that these borrowings are necessary given the fall in oil revenues and the huge infrastructural deficit needed to propel economic growth. While other economic analyst argued that the increase in the external debt makes the Nigerian economy vulnerable to external shocks. Their argument stems from the fact that Nigeria's external debt levels of $27.68bn is about 75% if external reserves, the highest since 2005. Unlike in previous economic crisis in 2009 and 2016, Nigeria's external reserves may not provide the buffer it requires in 2020. CBN is committed to billions of dollars in forex forward sales and has seen foreign demand for its bills dwindle. Without an uptick in crude oil prices and sales, reserves may fall below $30bn reducing the cover to external debt to below 100%.

To cope with the coronavirus pandemic, economic experts have recommended a more flexible exchange rate to relieve the pressure on the external reserves, which could lead to a fall in the exchange rate before becoming stable.


Nigeria's Domestic Debt

The yearly increase in Nigeria's domestic debt is a major source of concern giving the yearly corresponding rise in its external debt. A major reason for the rise in domestic debt can be attributed to dwindling oil prices and shifting of emphasis to domestic rather than external debt due to foreign exchange translation costs. Since the beginning of the year, Federal Government's bonds have been oversubscribed indicating that there is sufficient liquidity in the domestic market to absorb additional domestic debt, the cost of which is the crowding out of the private investment. Nigeria's domestic debt grew by +62.5% from December 2015 to December 2019. Its domestic debt rose from N8.8trn in December 2015 to N14.3trn in December 2019. It is projected that the domestic debt will rise further in 2020, as a result of coronavirus.


Chart 34: Nigeria's Domestic Debt (N'bn) 2015-2019

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Source: DMO, Proshare Research

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Related Reports (PDF)

1.     Download the Full PDF Report - Coronanomics and the Nigerian Economy, June 06, 2020

2.     Executive Summary PDF - Proshare, June 06, 2020


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