Based on data from the Debt Management Office (DMO), Nigeria's total debt for the first quarter of 2021 increased to N33.10tn from N32.92tn in Q4 2020. The growth was mainly driven by domestic debt (62.3% of total debt) which increased by 2.11% q/q to N20.64bn, following a 5.3% q/q increase in bond issuance. We note that the total bond issued in Q1 2021 was 1.6x higher than the proposed issuance. This reflects the pressured government finances and partly explains the continued soaring bond yields. Conversely, external debt dipped by 1.9% q/q to N12.5trn (US$32.9m), reflecting the US$500m Eurobond which matured in January.
While we note that the widening debt profile amidst; (1) vulnerability of the economy to external shocks; (2) government's inability to effectively diversify its revenue base; and (3) the frail economic recovery, could perhaps raise concerns over fiscal sustainability. The low debt to GDP ratio of 23% which remains significantly below the Sub-Saharan Africa level of 58% and below the 40% limit set by the Debt Management Office gives some comfort. We also see a moderate risk of debt distress mainly due to the low stock of foreign currency-denominated debt, which masks the impact of exchange rate shock. The country's debt is projected to reach 35.5% of GDP by the end of 2021.
That said, the government's interest payments continue to absorb a large share of federal government revenues, making the otherwise low debt-to-GDP ratio highly vulnerable to shocks. The total debt service to revenue ratio is currently estimated at c.70%. Furthermore, the external debt to export cover at 1.06x is worrisome, as this is lower than the 5-year average of 2.2x.
Between January and May of 2021, we estimate that the government has raised a total of N1.08trn through bond issuances. This implies 46% of the governmentâ€™s planned borrowing of N2.34trillion from the domestic market. This, coupled with the elevated inflation and the tight system liquidity will continue to support fixed income yield accretion.
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