Good news ahead on domestic debt service

The cost of domestic debt service continues to grow. In the 2017 calendar year it reached N1.48trn, and the 2018 budget projects a total of N2.01trn for domestic and external obligations combined but excluding sinking fund contributions for the settlement of arrears to contractors and other private-sector creditors. Domestic obligations account for about 90% of total debt service.

  • The chart shows that the payments peak in the first and third quarters. A close scrutiny of the data reveals that the six largest bond issues were launched in these two quarters.
  • The stock of the FGN’s domestic debt increased by N120bn to N12.15trn in the 12 months to June 2018. Our calculations arrive at an average cost of domestic borrowing of about 13.6% in the period, based upon total annual payments and the stock of debt at end-December. The same calculation made three months ago gave us an average of 13.2%.
  • Our more observant readers will be looking in vain for the benefits of debt externalization (ie lower domestic interest payments). We urge patience, recalling that the DMO’s redemption of NTBs began in H1 2018.
FGN domestic debt service payments (N bn)

Sources: Debt Management Office (DMO); FBNQuest Capital Research
  • That said, our impression is that the FGN has allowed itself a little “wiggle room” because its 2018 budget proposals predated the start of serious yield compression last year.
  • Based upon the same method and adding fees to interest but not principal repayments, we calculate the average cost of external borrowing in the same period at 2.9%.


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