Contingents seemingly under control

Another release by the DMO (its 2016 Debt Sustainability Analysis Report) puts the FGN’s contingent liabilities at N1,656bn at end-2015, equivalent to 1.7% of GDP. When we add the domestic and external debt of the federal government, the latter including the foreign-currency loans of the states guaranteed by the FGN, we come to a burden representing 13.0% of GDP. For a worst case scenario for total public debt, we have to allow for the states’ domestic debt, AMCON and NNPC obligations, and other items, which could push the total to a maximum of 25% of GDP.
By far the largest item among the contingents are pension arrears to employees of ministries, departments and agencies. The data are supplied by PenCom.

The second are dues to local contractors totaling N234bn. The liability is a FGN guarantee covering a bond issued by a special purpose vehicle to clear the arrears. A first coupon payment was made in June 2015. We should note the possibility that further arrears have accumulated since the creation of the vehicle and launch of the bond.

Other guarantees included in the data amount to N266bn. Those covering a fx transaction (such as the Lekki port and the World Bank support for the Azura-Edo IPP) are converted at the then exchange rate of N197. The end-2016 data from the DMO would show a higher naira burden.

A way forward for the FGN in its tackling Nigeria’s huge infrastructural deficit would be greater use of such loan guarantees.


Contingents seemingly under control Sources: Debt Management Office (DMO); FBNQuest Research

We do not wish to appear in any way complacent and so conclude by repeating the view that the weakness of the Nigerian debt story is the burden of its service and not its stock.

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