ECONOMY: Nigeria Debt Stock Hits 26.21 Trillion in Q3 2019 as Analysts back MPC’s CRR Raise by 27.50%…

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In the just concluded week, Nigeria and United Kingdom (UK) signed N153.40 billion (£320million) trade deals at the inaugural UK-Africa Investment Summit which attracted significant number of African countries.

President Buhari was optimistic that the renewed trade relationship would help stimulate growth in Nigeria as jobs and
more investment opportunities are created. In addition to stimulating Nigeria’s economic growth, the UK offered to help Nigeria resolve issues bordering around land for investment purposes.

Britain’s other areas of commitments with Nigeria include: improving the finance sector in order to assist entrepreneurs secure access to finance; prepare ground for the launch in the UK, naira-denominated bonds (“Jollof Bonds”); and propel clean energy transformation through technical support.

One of the investment-relationship successes between the UK and Nigeria is the operation of West Africa ENRG, a UK firm pioneering waste collection and recycling in Lagos and other states in the South West.

In another development, total debt figure released by the Debt Management Office (DMO) showed that Nigeria’s total public debt stock for the third quarter of 2019 increased by 1.98% to N26.21 trillion in September 2019 (from N25.70 trillion in June 2019).

The increase in the country’s total debt stock was chiefly due to a rise in local debt stock by 3.22% to N17.94 trillion in September 2019 (from N17.38 trillion in June 2019) despite higher cost of borrowing it was exposed to in the quarter.

While stop rates for Tbills averaged at 12.06% in September 2019 up from an average of 11.30% printed in June 2019, average stop rates for issued bonds was flattish at 14.49% in September 2019 from June 2019.

Further breakdown of the domestic debt figure showed that Federal Government of Nigeria’s (FGN) domestic debt stock increased to N13.90 trillion in September (from N13.41 trillion in June); also, states’ share increased slightly to N4.04 trillion (from N3.96 trillion) in the same period.

Domestic debt service payment skyrocketed q-o-q by 219.69% to N606.87 billion in Q3 2019 from N189.83 billion in Q2 2019 amid increase in local debt stock and higher cost of borrowing. Despite the surge in debt service payment in Q3 2019, implicit interest rate, annualised, moderated to 10.45% in 9M 2019 from 13.28% in 9M 2018.

On the flip side, external debt stock declined to N8.27 trillion (or USD26.94 billion at N307.00/USD) in September 2019 from N8.32 trillion (or USD27.16 billion at N306.40/USD) in June 2019. Although external debt stock fell, we saw external debt service payments rise to N145.50 billion (or USD473.94 million) in September 2019 from N77.30 billion (or USD252.30 million) in June 2019.

Nevetheless, implicit interest rate, annualised, moderated to 5.36% in 9M 2019 (from 7.88% in 9M 2018).
The current administration’s debt management objective of subtituting external debt for local debt in line with
its “60:40” debt mix target was not achieved as the local debt to external debt ratio stood at “68:32” in Q3 2019.

Meanwhile, the Central Bank of Nigeria Monetary Policy Committee (MPC), after its 2-day meeting, voted to
increase the Cash Reserve Ratio (CRR) by 500 bps to 27.50%.

It retained the Monetary Policy Rate (MPR) at 13.50% and the asymmetric corridor at +200 and -500 basis points around MPR. Liquidity Ratio was also left unchanged at 30%. The Committee considered the need to address the glut in financial system liquidity in order to tame demand-pull inflationary pressure and aid foreign exchange stability.

We welcome the decision of the MPC to increase the CRR by 500bps as this creates an outlet to ease built up
pressure of increased financial system liquidity which was created by its restrictive OMO policies.

In doing so, and by not reviewing the MPC upwards, we feel the monetary authority remains in alignment with the fiscal authority’s goal to boost output growth, in part, by making credit available at affordable cost to real sector players.

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