Alarming rise in domestic debt service

In our second commentary on the DMO’s data release for end-2016, we highlight the alarming increase in FGN domestic debt service (see chart). Payments have soared from N354bn in 2010 to N1.23trn last year. We focus on the domestic payments because they comprise close to 90% of the total burden, and because the FGN’s external debt obligations are overwhelmingly concessional and far less costly than its naira borrowing. The strength of the message on the successful Eurobond roadshow in February was based on the FGN’s external balance sheet.

To highlight the strains on the public finances, total debt service in 2016 represented a projected 35.4% of total FGN revenue. The ratio is so dire, of course, because the record of revenue collection has been poor.

The Economic Recovery and Growth Plan 2017-20 has the ratio deteriorating to 38.1% in 2018, and improving marginally to 34.5% in 2020. The explanation is twofold. Firstly, the projections assume stronger revenue collection and spending discipline, such that a primary surplus (before the deduction of interest payments) is achieved from 2019. Secondly, they have financing of the deficit predominantly external from next year (66% in 2018, rising to 72% at the end of the plan period in 2020).

The test of the plan is successful delivery, above all the use of the borrowed funds to create growth, employment and diversification of the economy. This administration has to set far higher standards than its predecessors.


Alarming rise in domestic debt service Sources: Debt Management Office (DMO); FBNQuest Research

On a statistical note, our figures are drawn from the recovery plan rather than the older printed version of the current 2017-19 Medium Term Expenditure Framework

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