External borrowing costs still below 4%

Our chart today shows the external debt service by creditor group paid by the FGN in the 12 months to March 2018. On the basis of the total for the 12 months and the stock of its external debt at end-September, we arrive at an average external debt service ratio of 3.7%. The total includes payments of principal, service fees and commitment charges as well as routine interest. By taking the stock of debt at the mid-point of the 12-month period, we accept that the ratio is an approximation. The broader point is that payments to ICM creditors are now the highest.

  • By creditor group, the ratio is the highest (6.6%) for ICM and the lowest (1.6%) for the World Bank Group. For the Exim Bank of China, it stands at 5.2% by the same method.
  • The argument for debt externalization, according to the DMO and federal finance ministry, is based in part on the borrowing costs. As the FGN continues to borrow on the Eurobond market and as the impact of monetary policy normalization in the US increases, the ratio of 3.7% will surely rise.
  • That said, the FGN will continue to tap concessional sources of financing. It is difficult to see the average cost of domestic borrowing falling to, say, 5.0%.
  • Externalization is not a permanent shift: it is to continue until the domestic/external blend of borrowing reached the target of 60/40.
  • The other argument for externalization is to prevent “crowding out”. The latest data on private-sector credit extension show flat loan books for the deposit money banks.
FGN external debt service by lender group (12 months to Mar 2018; % shares) Total: US$561m

Sources: Debt Management Office (DMO); FBNQuest Capital Research
  • The category of others is predominantly the dues paid on the historic oil warrants, originally attached to the par bonds of 1992.


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