Revenue growth cannot come fast enough

The release of the National Debt Management Framework 2018-2022 allows us to assess its targets and comment on Nigeria’s debt burden. The framework is the work of the Debt Management Office (DMO) and should be viewed alongside its Strategic Plan for the same years. Warnings of a public debt crisis in Nigeria abound but they generally fail to distinguish between a sound, indeed healthy, ratio for the debt stock and the soaring cost of debt service.

  • The framework sets a ceiling for public debt (including state governments)/GDP of 25% at end-2020. The DMO’s own figures show a level of 17.6% for September 2018 on last year’s GDP.
  • Another target is a 40/60 split between fx and local currency debt by end-2019. The ratio stood at 29/71 in September and will move further in the right direction in the DMO’s Q4 2018 report with the inclusion of US$2.9bn Eurobond issuance in November.
  • The framework indicates that the FGN’s contingent liabilities are set to increase in support of capital development. We saw a call in the local media for the entire infrastructural deficit to be covered by the issue of government guarantees, which would be a far higher increase in contingents than that envisaged by the federal finance ministry.
  • Contingents amounted to N1.15trn at end-2017 or 1.0% of the year’s GDP, of which the largest element was N1.04trn for pension arrears in ministries, departments and agencies. AMCON was included among the contingents until 2013 but its liabilities now appear on the CBN balance sheet.
  • The FGN is moving towards, or has already met targets for the average time to maturity and the long/short term mix of domestic debt.
  • The weakness of the story remains debt service.  We welcome the pledge in the framework that the priority in external financing should be concessional funds, and that debt capital markets should cover any shortfall. The FGN’s 2019 budget proposals follow this thinking although the reality was different in 2018.
  • The FGN’s retained revenue very rarely covers its recurrent spending (Good Morning Nigeria, 07 February), and the expected rise in the minimum wage has not yet been introduced. Its total debt service accounted for 62.6% of revenue in 2017, and the burden will increase in the short term until the collection of non-oil taxes and levies is transformed. The improvements recorded in the past 12 months have been from a very low base.

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