The FGN’s domestic debt stock amounted to N12.03trn (US$39.3bn) at end-June, equivalent to 11.9% of 2016 GDP. We view the modest increase of N60bn in Q2 in the context of the DMO’s slowdown in gross issuance at auction from N535bn over the previous quarter to N315bn. The domestic debt stock/GDP ratio is very healthy for a sovereign rated B+/B. It is a core element of the FGN/DMO narrative on roadshows. Investors will see, however, that the stock has nonetheless grown quickly and will be looking for assurances as to the quality of its utilisation.
To expand federal into public domestic debt, we have to add: the bank borrowings of state governments, which the DMO estimated at N2.96trn at end-December, their outstanding bonds, the bonds issued by AMCON, and the debts of the NNPC and other public agencies.
There is also the grey area of FGN debts to contractors and other private- sector players incurred by the previous administration and unearthed by the finance ministry in December. The total was initially estimated at N2.2trn although we have seen figures up to N3.4trn. These claims are to be verified and then securitized. Their inclusion would push up the public domestic debt stock to around 25% of 2016 GDP.
This is the worst-case scenario. In line with established practice, it excludes the CBN’s many credit lines and the FGN’s contingents such as guarantees.
The authorities will be disappointed by the take-up of the FGN’s savings bonds for the retail segment. The DMO raised less than N3bn from these sales in Q2 but will be anticipating a far better response to its maiden sukuk (Islamic bond), for which it has held a roadshow across the country.
