The clear impact of debt externalisation

The FGN’s domestic debt stock amounted to N12.58trn (US$41.1bn) at end-March, equivalent to 11.1% of 2017 GDP. A decline of N10bn in Q1 is the consequence of the FGN policy of “externalisation” of its debt obligations (the deployment of Eurobond proceeds to pay down naira-denominated paper). The DMO redeemed NTBs totaling N280bn in the quarter from the proceeds of the US$2.5bn Eurobond issuance in February. Its medium-term target is a 60/40 split between the domestic and external components of public debt (FGN and states combined).


  • The split stood at 70/30 at end-March, compared with 73/27 three months earlier. The policy is designed to take advantage of the interest rate differential favouring external issuance. The normalization of US monetary policy will work against the strategy to some extent. However, we note that Nigeria and other EM issuers have benefited from the exclusion of new Russian sovereign and corporate paper from the market due to sanctions.
  • The DMO’s strategy is also intended as a counter to “crowding out”. The data for Q1 2018, however, shows that deposit money banks have not increased their loan books to the private sector (Good Morning Nigeria, 20 June 2018).
  • The headline ratio of 11.1% of GDP would become, say, a maximum of 30% if we broadened the measure of public debt and added external borrowings.


Sources: Debt Management Office (DMO); FBNQuest Capital Research
  • It is sometimes said that the debt/GDP ratio has limited relevance because debt obligations are serviced by the government and not the broader economy (whatever its size). While we acknowledge the argument, we note that the ratio is used by ratings agencies and potential lenders, and provides another tool for cross-country comparisons.

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