Picture for debt service less healthy

Proshare

Thursday, May 14, 2015 8:56 AM / FBN Capital Research

In the past two days we have made much of the healthy ratios for the federal debt stock, both domestic and particularly external, as a proportion of GDP. The picture is less rosy for the FGN debt service/total revenue ratio.

According to international criteria, this ratio (for principal and interest combined) should remain below 25%. Nigeria’s was 21% in 2013 and projected at 23% for 2015 in the FGN’s budget proposals which were lodged in December before the second leg of the slide in the oil price. The debt service obligations have obviously remained constant in the intervening period.   


Those same proposals have recurrent spending (including statutory transfers and debt service) at 86% of the total. They left very little for funds to address the infrastructure deficit.

Our chart shows just the interest payments. These fell dramatically in 2010 but the FGN made principal payments of N335bn in the year.  

The low, stable level of payments on the external debt reflects not merely the FGN’s caution on offshore borrowing but also its preference for concessional loans from multilateral agencies.




The FGN’s proposals have total interest payments this year at N935bn. Since the stock of federal domestic debt has now passed N8.5trn, we should not be surprised. Because rates are unlikely to retreat rate anytime soon (our next projected move in the policy rate is a hike of 100bps), the new administration will surely look to meet its spending commitments by plugging “leakages” and enhancing non-oil revenue collection.   

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