By FBNQuest Research                                                                                 

From the DMO’s quarterly data release, we see that the FGN’s domestic debt service totaled N254bn in Q4 2019, compared with the year-earlier figure of N223bn. This was the first increase on a y/y basis since Q3 2018, which we view in the context of the debt structure. The stock of the higher-yielding FGN bonds rose by N450bn in Q4 while that of NTBs was flat at N2.65trn. As the PFAs, excluded from the market in OMO bills, invested heavily in the NTBs, so yields on the 364-day paper, for example, tumbled by over 600bps at primary auction in Q4 2019.                                                                                                            

On an annual basis, domestic debt service did decline from N1.80trn in 2018 to N1.69trn. Domestic payments account for about 85% of total debt service.

The burden of total debt service is a weak point in Nigeria’s credit dynamics because of the pitifully low revenue generation. According to data from the federal finance ministry in the public presentation of the 2020 budget, it amounted to N1.81trn in 9M 2018 (64.9% of total FGN revenue), and to N1.92trn in 9M 2019 (45.2%). The approved 2020 budget has N2.45trn for the full year (31.1%).

We still feel that there is a little headroom in the projection of N2.45trn yet rather less than before the latest intensification of the global headwinds.

FGN domestic debt service payments (N bn)

Proshare Nigeria Pvt. Ltd.

Sources: Debt Management Office (DMO); FBNQuest Capital Research

More substantially, the total revenue figure, notably the projection of N2.64trn for the FGN’s oil revenue, will be cut in the current reworking of the approved budget. This exercise has become necessary because of the crashing oil price and the impact of the coronavirus, both domestic (due to lockdowns, for example) and imported.

The payments peak in the first and third quarters, when the issuance of FGN bonds is concentrated.

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