The Central Bank of Nigeria (CBN) has said Federal Government spent N1.03trillion on debt servicing in the first quarter (Q1) of 2021 compared with N779.73 billion in the corresponding period of 2020.
The apex bank in its Economic Report for April 2021 attributed the surge in the government’s debt servicing obligations during the period to interest payments on additional FGN bonds, promissory notes and the redemption of the $500 million Eurobonds, which matured in January 2021.
According to CBN, “Public borrowing remained anchored on the medium-term debt strategy of the Federal Government
“FGN debt outstanding rose to N28,984.30 billion at end-March 2021, an increase of 2.5 per cent and 15.8 per cent, relative to end-December 2020 and the corresponding period in 2020.
“The development was propelled by the fiscal policy drive to support economic recovery, reduce infrastructural deficit and fund COVID-19 mitigation programmes.
“Domestic debt accounted for 57.0 per cent of FGN total debt, while external debt servicing obligations constituted 43.0 per cent. This compares with a mix of 70:30 for domestic-external debt target in the 2020-2023 medium-term debt strategy of the FGN.
“Following FGN’s full redemption of the $500 million Eurobond in January 28, 2021, external debt stock declined by 1.8 per cent, relative to end-December 2020.
Comparatively, domestic debt outstanding rose by 3.6 per cent. FGN bond issues maintained its dominance in the composition of domestic debt, accounting for 75.5 per cent of the total domestic debt, followed by Treasury Bills (15.8 per cent); Promissory Notes (5.7 per cent); FGN Sukuk (2.2 per cent); and others 3 (0.9 per cent).
The distribution is in tandem with the FGN’s
objective to hold more of long term domestic debt instruments than short (75:25). “Debt service obligations as at first quarter of 2021, amounted to N1,032.29 trillion, compared with N779.73 billion and N461.98 billion in the first and fourth quarters of 2020, respectively.
The significant rise was due, largely, to the interest payments on additional FGN bonds, Promissory Notes and the redemption of the $500 million Eurobonds, which matured in January 2021.”
The CBN’s Economic Report for April comes on the heels of the announcement by the Debt Management Office (DMO) that Nigeria’s total public debt, comprising States and Federal Government debt obligations, grew by 7.75 per cent, from N32.916 trillion in December 31, 2020, to N35.465 trillion as of June 30, 2021.
However, the report said total request for the Standing Lending Facility (SLF) in April 2021 was N2,302.58 billion (made up of N1,543.52 billion direct SLF and N759.06 billion intra-day lending facility converted to overnight report).
According to the report, “Daily request averaged N135.45 billion in the 17 transaction days with total interest earned at N1.33 billion. Total Standing Deposit Facility (SDF) granted, during the review period, was N118.94 billion with daily average of N7.00 billion in the 17 transaction days. Cost incurred on SDF in the review month stood at N0.23 billion.”
“Activities at the standing facility windows showed
predominance of the lending window over the deposit window with applicable rates for the SLF and SDF at 12.5 per cent and 4.5 per cent, respectively.
“The recourse to standing facility resulted in a net lending of N2,183.64 billion, due to tight liquidity in the banking system.”
The report explained that the Banking system liquidity took a downward turn and caused an upsurge in money market rates in the review month.
The report said, “The decline in the banking system liquidity was as a result of provisioning and settlement of foreign exchange and CBN bills purchases, as well as Cash Reserve Requirements (CRR) debits.
Nevertheless, repayment of matured securities and fiscal disbursements to the three tiers of government moderated the liquidity condition in the banking system.
“Consequently, the average net industry liquidity position in April 2021 declined by 43.3 per cent to N146.59 billion, compared with the N258.71 billion recorded in the preceding month.”
FG Debt Servicing Obligations in 2021