Total debt portfolio of the country is set to hit N15.93 trillion this year, according to analysts at FSDH Research. According to them, both external debt and domestic debt should stand at N12.87 trillion, while that owed by the Asset Management Corporation of Nigeria (AMCON) should be at least N3.7 trillion, bringing the total to N13.93 trillion.
FSDH said, available data from the Debt Management Office (DMO) shows that the Nigeria’s total debt stock (addition of external and domestic debt) as at September 30, 2014 stood at N10.84 trillion, representing an increase of 7.97 per cent from the December 31, 2013 figure of N10.04 trillion. A breakdown of the debt stock shows that external debt accounted for 13.68 per cent of the total debt stock at N1.48trn (US$9.52bn at an average exchange rate of $/ N155.73), while domestic debt stock accounted for 86.32 per cent of the total debt stock at N9.36 trillion. FSDH Research estimates a debt-to-GDP ratio of 12.89 per cent to end year 2015.
This means that Nigeria’s debt portfolio still has wide fiscal sustainability space; as the debt-to-GDP ratio is below the applicable critical limit of 40 per cent set for the economy by the government.
There was a decrease in the contribution of the external debt to the total debt stock in third quarter of 2014, compared with third quarter of 2013.
Meanwhile, the current distribution of about 86:14 ratio of domestic debt to external debt by the Federal Government as at third quarter of 2014 is higher than the acceptable optimal ratio of 60:40 as indicated in the National Debt Management Framework (2013-2017) prepared by the Debt Management Office (DMO).
The implications is that the fall in the oil price may further worsened the revenue projection of the Federal Government of Nigeria (FGN), and the need to meet the revenue shortfall from the domestic financial market through borrowing could crowd-out the private sector in the debt market.
Also, the ratio of interest payment to revenue has increased because of the declining revenue. This can trigger higher yields for both the existing and new debts.
However, the total debt-to-GDP ratio is lower than the 40% target of the federal government. This means that Nigeria’s debt is sustainable. However, the rising ratio of interest payment to the revenue is a major stress point.