Monday, 18 November 2013

Nigeria’s Debt Rises to N8.32 Trillion

up2307213-Ngozi-Okonjo-Iweala.jpg - up2307213-Ngozi-Okonjo-Iweala.jpg
Ngozi Okonjo Iweala, Finance Minister
Nigeria’s total debt stock increased by 10.20 per cent to N8.32 trillion as at September 30, 2013, compared with the N7.55 trillion it was as at December 31, 2012, the Debt Management Office (DMO) has revealed.

This includes both external and domestic debts.
A breakdown of the public debt showed the external debt (federal government and states) accounted for 15.50 per cent of the total debt stock at N1.29 trillion ($8.26 billion at exchange rate of 155.75/$1), while the domestic debt stock accounted for 84.50 per cent of the total debt stock at N7.03 trillion.
The external debt contributed about 13.59 per cent to the total debt as at the second quarter of 2013.
A report from FSDH Merchant Bank Limited explained the increase in the contribution of external debt to the total debt stock as at third quarter 2013 compared with the second quarter, was due to the benign interest rate environment in the international financial system, which the federal and state governments utilised to their advantage.

But the National Debt Management Framework (2013-2017) prepared by the DMO indicates the acceptable optimal ratio of domestic debt to external debt by the federal government should be 60:40, as opposed to the current distribution of about 84:16 as at the third quarter.

“FSDH Research estimates that the public debt stock in the country as a proportion of Gross Domestic Product (GDP) in 2013 would stand at about 20.24 per cent.
“We note that the debt to GDP ratio is acceptable as it is below the applicable critical limit of 56 per cent for countries in Nigeria’s economic peer group.

“This means that Nigeria’s debt portfolio has wide fiscal sustainability space. There is a commitment by the federal government to ensure that the total debt stock does not exceed 40 per cent of GDP,” it stated.
However, if the Asset Management Company of Nigeria (AMCON) bond is added to the outstanding total debt, the debt-to-GDP would amount to about 34.04 per cent, which is still below the FGN commitment of debt-to-GDP not exceeding 40 per cent.

The Central Bank of Nigeria (CBN) has indicated its commitment to assume the contingent liability of the AMCON bonds.
Currently, AMCON bonds are held between CBN and non-CBN holders including banks, Pension Fund Administrators, insurance companies and asset managers. By December 30, 2013, the plan is to have fully redeemed all AMCON bonds (series 1 – 4); while Series 5 will be redeemed in batches prior to maturity in 2014. The bonds held by CBN will be refinanced for 10 years, and post 2014, will be the only AMCON bonds in issue.

Continuing, the FSDH report stated: “Further analysis shows that Nigeria’s total external debt stock as at September 30, 2013 stood at $8.26 billion, representing an increase of 19.36 per cent from $6.92 billion as at June 30, 2012.
“The breakdown of the external debt as at end-September 2013 showed that 71.23 per cent was owed to multilaterals, which includes the World Bank Group, International Fund for Agricultural Development (IFAD), African Development Bank Group (ADB), Arab Bank for Economic Development in Africa (ABEDA), International Development Bank (IDB) and Economic Development Fund (EDF); 10.29 per cent was owed to bilateral parties and 18.47 per cent was owed to others.”

On the other hand, the debt office also put the country’s domestic debt stock at N7.03 trillion as at the third quarter of 2013, up by 2.63 per cent from the N6.85 trillion it was as at June 30, 2012. The breakdown of the total domestic debt stock by instrument type as at September 30, 2013 showed the FGN Bonds accounted for N4.22 trillion representing 59.93 per cent; Nigerian Treasury Bills (NTBs) accounted for N2.48 trillion, representing 35.31 per cent and Treasury Bonds (TBs) accounted for N334.56 billion, representing 4.76 per cent.
“Our forecast GDP and debt stock for Nigeria in the next three years shows that the debt position is sustainable. In 2013, we expect the total debt to amount to about N8.42 trillion, with domestic debt accounting for 84.32 per cent at N7.10 trillion and external debt accounting for 15.68 per cent at N1.32 trillion,” it stated further.

The Nigerian Interbank Offered Rates (NIBOR) increased significantly to an average of 15.08 per cent last Friday, compared to the 10.5 per cent it was the preceding Friday.

This was largely attributed to outflow to the purchase of forex, FGN bonds and treasury bills. Despite the payment of N104.91 billion from matured treasury bills into the system, the amount was not enough to calm the interbank rates.

Specifically, data from the FMDQ showed that while the call (overnight) tenor climbed to 14.08 per cent on Friday, from 10.79 per cent the preceding Friday, the 7-day increased to 14.46 per cent on Friday, from 11.08 per cent.
In the same vein, just as the 30-day tenor jumped to 14.79 per cent on Friday, from 11.75 per cent the preceding Friday, the 60-day tenor also closed higher at 15.25 per cent last Friday, from 12.12 per cent.

Similarly, the 90-day, 180-day and 365-day tenors all closed higher at 15.46 per cent, 15.67 per cent and 15.87 per cent respectively.
At the Nigerian Interbank Treasury Bills True Yield (NITTY) arm of the market, the FMDQ data showed the one-month tenor reduced slightly to 11.12 per cent last Friday, from 11.31 per cent the preceding Friday, while the two-month tenor dropped to 11.38 per cent, from 11.81 per cent the preceding Friday. In addition, the three-month, six-month, nine-month and 12-month tenors for the NITTY all closed at 11.62 per cent, 12.12 per cent, 12.59 per cent and 13.14 per cent respectively.
In addition, while the call rate for repurchase agreement (Repo) closed higher at 13.50 per cent last Friday, from 10.58 per cent the preceding Friday; the one-month at 14.25 per cent, from 11.75 per cent; three-month at 15 per cent, from 13.33 per cent, the six-month tenor also closed higher at 15.75 per cent, from 13.92 per cent.

Forex Market
At the CBN Retail Dutch Auction System (RDAS), the regulator offered a total of $600 million last week. It however sold a total of $590 million out of the amount offered to the market. The naira closed at N155.70 to a dollar at the official, market window. But at the interbank and bureaux de change (BDC) segments of the market, the nation’s currency depreciated by 61 kobo and 150 kobo to close at N159.24/$1 and N169.00/$1 respectively. The gap at the parallel arm of the market widened further due to scarcity and tightened regulation as the naira depreciated to N168/$1. This represents a premium of 7.9 per cent over the official CBN rate.
Analysts at Afrivest Securities predicted that the nation’s currency would depreciate slightly as the Yuletide season draws closer.

Bond Market
According to Afrinvest, yields across various maturity spectrums kept a southward trend as demand puts pressure on bond prices. The 9.25 per cent FGN Sep 2014 recorded the highest decline of 37 basis points to close the week at 12.8 per cent. On the average, yields across the market were below 13 per cent.

Lagos State commenced the sale of the N87.5 billion 7-year bond
(maturing Nov. 2020) last week at 12.5 per cent to 13.5 per cent. The book building is expected to close on November 19, 2013. The debt instrument is part of the N167.5 billion debt issuance programme of the state between 2012 and 2019, dedicated to infrastructure development.
Lagos State issued N50 billion 5-year bonds in 2008, N57.5 billion 7-year bonds in 2010 and N80 billion 7-year bonds last year at 14.5 per cent.

“We expect slight profit-taking this week, with a marginal uptick on yields. We are optimistic on the success of the Lagos bond issue given the attractive yield and Lagos state’s credit quality,” Afrinvest stated.
Source: ThisDayLive


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