Analysts see Nigeria’s public debts rise to N34 trillion in Q3

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Nigeria’s public debts may continue its quarterly increase to hit about N34 trillion in the third quarter ending September 30.

Data provided by the Debt Management Office (DMO) had shown that the nation’s public debt had risen by 8.3 per cent or N2.38 trillion to close the second quarter 2020 at N31.01 trillion. The second quarter increase was due to combined foreign and domestic loans during the period.

The Federal Government had in the second quarter secured N1.21 trillion or $3.36 billion budget support loan from the International Monetary Fund (IMF). the government also issued new domestic conventional bonds valued at N666.76 billion in addition to non-interest Sukuk bond of N162.56 billion. It also issued promissory notes of about N255.42 billion to settle claims of exporters.

In many reviews at the weekend, leadng investment banking groups said Nigeria’s public debts will continue on the upward trajectory in the third quarter.

In one review, Cordros Group indicated that Nigeria’s public debt may continue on the upward as the government struggles with declining revenue amid bloated expenditures.

The report indicated that with Nigeria expected to access more foreign loans from the World Bank, African Development Bank (AfDB) and Islamic Development Bank (IDB) as well as continuing domestic issuances, public debt stocks may rise by 4.8 per cent to about N32.50 trillion by September ending. Other reports indicated that the loan portfolio may close around N34 trillion citing devaluation effect.

The loans during the third quarter include multilateral loans of $1.5 billion from the World Bank, $211.5 million from AfDB and $113 million from IDB. Domestic issuances, including the monthly Federal Government of Nigeria Savings Bond (FGNSB) are expected to top N588.9 billion while state governments may close the shelf with borrowings of about N200 billion.

“Faced with the severe impact of COVID-19 on all economic units, the government has grappled with low revenue in the face of increasing expenditure to limit the impact of the pandemic on the economy,” Cordros Group stated.

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Data provided by DMO showed that external debts accounted for 36.65 per cent of Nigeria’s total public debt by the end of the period ended June 30, 2020. This consisted of 31.68 per cent for the Federal Government and 4.96 per cent for the state governments. Domestic debts accounted for 63.35 per cent. Of the N19.65 trillion domestic debts, the Federal Government accounted for N15.46 trillion while states held N4.19 trillion.

DMO said it also expected the national debts to increase as it continues its domestic issuances. The agency noted that additional promissory notes might be issued in the next quarters while state governments’ borrowings may increase

Many analysts have criticised the crowding effect of government’s domestic bond issuances but the DMO has repeatedly noted the developmental impact of government’s sovereign issues on the debt capital market, including breaking new markets in alternative debt and climate issuances.

At the last count, Nigeria’s total outstanding non-sovereign bonds stood at about N1.03 trillion, including N630 billion in outstanding corporate debt issues and some N400 billion outstanding sub-national bonds.

In terms of debt servicing, total payments in second quarter 2020 rose 42.6 per cent to N416.4 billion, driven by both domestic and external debt. Federal Government’s domestic debt servicing burden rose by 45.6 per cent to N312.8 billion from N214.8 billion in 2019. External debt servicing cost increased by 13.8 per cent to $287 million in second quarter 2020 from $252.3 million in second quarter 2019.

“The increase in debt servicing burden suggests that Federal Government’s debt service to revenue ratio would continue to worsen, especially given weak revenue growth and further currency devaluation to N381.00 per dollar in third quarter 2020,” Afrinvest Securities stated at the weekend.

In its report, analysts at Afrinvest Securities noted that the share of external debt in total debt for the Federal Government has now reached 38.9 per cent, nearing government’s target of 40.0 per cent.

According to analysts, the rise of external debts to almost 40 per cent should ordinarily prevent the issuance of further external loans given the strong chance of further currency adjustments, but there may be sustained rise in government’s external debts due to additional budget support of $2.1 billion yet to be disbursed by World Bank, AfDB and the IDB.

“Looking forward, we expect more domestic debt issuances to bring down the share of external debt and lower devaluation risk. On a brighter note, we believe the removal of energy subsidies-electricity and petrol, could herald a new fiscal era which would ease Federal Government’s expenditure burden, freeing up resources for investment in critical sectors,” Afrinvest Securities stated.

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