FGN’s External Debt Service Obligations Reaches US$507m in Q3 2020

Debt service on the FGN’s external obligations reached a total of USD507m in Q3 ’20, divided between USD263m and USD244m on market and non-market debt respectively.

The market figure was the same as in Q3 ’19 and Q1 ’20 because the FGN has not issued Eurobonds, which pay semi-annual coupons, since November 2018.

The burden should be comfortable for an oil exporter on the scale of Nigeria, which has a quota of 1.52mbpd for Q1 ’21 under the latest OPEC+ agreement, particularly when we allow for the current firmness of the crude price. The strains emerge when we view debt service in the context of FGN revenue rather than of oil export earnings.

The detailed reports of the Budget Office of the Federation show that total debt service of NGN1.57trn in H1 ’20 covered 95% of total FGN inflows. The ratio appears even worse than usual because the lockdown in response to the Covid-19 virus constrained revenue in the period and because collection tends to gather momentum in the second half. By way of comparison, debt service of NGN2.45trn represented 59% of inflows in 2019.

The approved 2021 budget has total debt service at NGN3.32trn, equivalent to 42% of total revenue. We suspect that, not for the first time, the FGN’s revenue projections will prove overly hopeful, and that the ratio will therefore come out rather worse than implied by its budget.

Based upon annual interest and fee payments in the 12 months to end-September, and the stock of external debt as at end-March, we calculate the average borrowing cost from the World Bank Group at 1.1%, the African Development Bank Group at 2.0% and Exim Bank of China at 2.7%. For the FGN’s market (commercial) obligations, the average comes out at 7.5%.

In April ’20 the FGN borrowed SDR2.5bn (currently USD3.6bn) from the IMF under its rapid financing instrument to tackle external shocks (the virus in this case). Repayments of principal start in 2023 and run through until 2025. The credit, unlike its traditional arrangements, comes without the Fund’s conditionality, which explains why the FGN drew down the facility.

Repayments of principal in Q3 ’20 came to USD144m, notably USD59m for the World Bank Group and USD58m for Exim Bank of China.