Report: Nigeria’s debt market remains low

The Nigeria’s current debt market size as at September 7, 2017, stood at N19.45 trillion, which has contributed immensely to the outcome of analysts from First Securities Discount House Limited (FSDH) in their recent analysis of debt-to-Gross Domestic Product (GDP) ratio, concluding that the nation’s debt market is still low.

The FSDH analysts, also, believed that the comparative analyses of debt-to-GDP of a number of countries show that the ratio is very low in Nigeria.

According to the analysts, amongst the countries monitored, Japan recorded the highest debt-to-GDP of 250.40per cent.

This was followed by the United States of America (US) with 104.17 per cent; France 96 per cent, United Kingdom (UK) 89.30 per cent; and Germany 68.30per cent. India and China have a debt-to-GDP> of 69.50 per cent and 42.90 per cent respectively.

While South Africa and Venezuela have debt-to-GDP of 50.10 per cent and 49.80per cent respectively, the debt-to-GDP ratio in Nigeria as at December 2016 stood at 17.11 per cent.

The analysts from FSDH securities said this is far below the critical limit of 40 per cent the FGN has set for the Nigerian economy.

“This means that, by this metric alone, there is substantial room for the government to increase its borrowing. However, the debt-to GDP ratio is not the only issue,” the FSDH analysts insist.

Available data from the Debt Management Office (DMO) shows that Nigeria’s total debt stock as at March 2017 stood at N19.16 trillion, representing an increase of 10.37per cent from the December 2016 figure of N17.36trillion.This also represents growth of 153.63 per cent from N7.55 trillion in 2012. A breakdown of the debt stock shows that external debt accounted for 22.08per cent (N4.23 trillion), while domestic debt stock accounted for 77.92per cent (N14.93 trillion).

The major stress point they said is the rising level of interest payment relative to government revenue. The ratio of interest payment-to-government revenue increased from 24.48 per cent in 2012 to an estimated 35.32 per cent in 2016.

The FGN expects that this ratio will moderate slightly to 33.67 per cent in 2017. The fact that interest payment is such a significant part of government revenue limits the revenue left for the government to undertake other developmental projects in the short-term.

We expect this position to improve as government revenue increases as a result of the ongoing economic measures in the country to raise the level of revenue. “We are of the opinion that government should develop strategies to reduce the ratio of interest payment to revenue below 20 per cent in the medium-term.

“Although the debt stock in Nigeria has increased substantially, we believe it is sustainable in the short-to-medium term given the economic growth potential of the country,” FSDH stated in a recent report.

The FGN is also working to diversify its revenue base through the issuance of the FGN Savings Bond, Diaspora Bond, and Sukuk. The efforts of the FGN coupled with the improvement in the macroeconomic environment should help to lower interest rate.