N87.9trn Debt: Trajectory of Debt Sustainability and the Prudent Management of Fiscal Resources…

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This week, the Debt Management Office (DMO) published Nigeria’s public debt profile report which show that during the third quarter of 2023, Nigeria experienced a marginal increase of 0.61% in its total public debt, reaching N87.91 trillion.

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This substantial rise reflects a notable 99.5% year-on-year increase from the corresponding period in 2022 when the total debt stood at N44.06 trillion.

This indicates that the total debt encompasses both domestic and foreign obligations of the federal government, the 36 state governments, and the federal capital territory.

The comprehensive breakdown of this colossal debt, amounting to N87.91 trillion ($114.4 billion at an exchange rate of N768.76), encapsulates the combined financial
obligations of the federal government, the 36 state governments, and the federal capital territory. Diving into the details, the debt composition is dichotomized into N31.98 trillion in external debt and N55.93 trillion in domestic debt. This demarcation is crucial as it sheds light on the intricate web of international and local financial commitments.

Zooming in on the domestic debt structure, it is noteworthy that the N50.19 trillion allocated to the federal government far surpasses the N5.74 trillion designated for the sub-national entities, including the federal capital territory.

This delineation emphasizes the federal government’s predominant role in domestic borrowing, a trend attributable to the multifaceted economic challenges faced by both federal and state governments.

The upswing in domestic debt is ascribed to concerted borrowing initiatives by the federal and state governments, particularly aimed at mitigating the economic reverberations of the Petroleum Motor Spirit (PMS) subsidy removal.

This strategic borrowing, however, underscores a pertinent concern regarding the prioritization of recurrent expenditure over capital expenditure, a facet that warrants careful scrutiny for sustainable fiscal management.

Delving deeper into the debt capital market, the lion’s share of the N50.19 trillion domestic debt is sourced from government borrowings, with FGN Bonds constituting a substantial 86%, amounting to N43.18 trillion.

The remaining 14% is distributed among various instruments, with Treasury bills and FGN Sukuk leading the pack, indicating a robust demand from investors in recent monthly auctions.

A juxtaposition of the domestic and external debt scenarios reveals a noteworthy trend. While the domestic debt increased by N1.80 trillion between June and September 2023, the external debt profile exhibited a positive movement, contracting to $41.59 billion in September 2023.

This reduction, totaling $1.57 billion or 3.64%, stems from a strategic $500 million Eurobond redemption and a $413.86 million repayment to the International Monetary Fund (IMF). This repayment marks the initiation of the principal payment on the $3.4 billion loan obtained from the IMF during the tumultuous COVID-19 pandemic in 2020.

For context on the Eurobond repayment, we note the move by the DMO as a positive development for Nigeria’s Eurobond market and speaks volume or demonstrates the debt office’s commitment to debt service obligations by redeeming a $5 00 million Eurobond borrowed in 2013.

This redemption, along with previous ones at the start of the year, brings the total securities redeemed by Nigeria in the International Capital Market to $1.8 billion.

The successful redemption showcases Nigeria’s strong debt management operations and planning, reinforcing investor confidence in the country’s financial stability.

The redemption of the Eurobond is perceived as a positive development for Nigeria’s Eurobond market, demonstrating the Debt Management Office’s commitment to meeting debt service obligations.

This move reinforces investor confidence in the country’s financial stability. The total securities redeemed by Nigeria in the International Capital Market, including this Eurobond redemption, amount to $1.8 billion.

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