Payments for domestic debt service have risen from N354 billion to N1.23 trillion in six years ended 2016, a report by FBNQuest, has said.
The report said although there is still exemplary ratio for domestic debt stock/Gross Domestic Product (GDP), but the rise in domestic debt service is alarming.
“We focus on the domestic payments because they comprise more than 90 per cent of the total burden, and because the Federal Government of Nigeria’s (FGN’s) external debt obligations are mostly concessional and far less costly than its naira borrowing. There is a point at which this domestic debt service burden becomes unsustainable, and we are not a million miles away from it,” it said.
It said total debt service in the 2016 budget represented a projected 35.4 per cent of total FGN revenue. “The ratio was so dire, of course, because the record of revenue collection has been poor. In practice, collection was even poorer than forecast and the actual ratio was above 60 per cent,” the report added.
The FBNQuest report said the cost of issuing treasury bills has soared, to the benefit of the commercial banks (the main buyers). Since August 2016, the yields on the 364-day paper at auction have settled above 22 per cent (and more than doubled over 12 months).
“There are grounds for hope on the horizon. In the short term, the Debt Management Office’s front-loading of issuance this year has resulted in sales of FGN bonds at auction totaling N750 billion over five months. The still-to-be-signed-off 2017 budget projects net domestic borrowing of N1.25 trillion,” it added.
Secondly, the Economic Recovery and Growth Plan 2017-20 sets out a shift in borrowing strategy in line with the DMO’s medium-term paper on the subject. It has financing of the deficit largely external from next year, rising from 66 per cent of the total in 2018 to 72 per cent at the end of the plan period in 2020.