05 July 2018 ( Lagos ) : In the 2017 calendar year the domestic debt service reached N1.48trn, and the 2018 budget projects a total of N2.01trn for domestic and external obligations combined but excluding sinking fund contributions for the settlement of arrears to contractors and other private-sector creditors. Domestic obligations account for about 90% of total debt service.

According to analysts payments peak in the first and third quarters. A close scrutiny of the data shows that five of the six largest bond issues were launched in the first quarter. The exception is the Jul ‘34s, expanded to a size of N1.08trn under the restructuring of state governments’ debt.

The stock of the FGN’s domestic debt increased by N610bn to N12.58trn in the 12 months to March 2018. Analysts are not party to the FGN’s interest rate assumptions. Their calculations arrive at an average cost of domestic borrowing of about 13.2% in the period, based upon total annual payments and the stock of debt at end-September. The same calculation made on the basis of the end-December figures gives us an average of 12.3%.

This is not to be confused with an average interest rate since about 25% of the stock consists of NTBs, which do not pay a coupon.

That said, analyst's impression is that the FGN has allowed itself a little “wiggle room” because it framed its proposals before the start of serious yield compression last year.

Additionally, the new budget shifts the thrust of deficit financing to external sources (N850bn vs N1.07trn in 2017) from domestic (N790bn vs 1.25trn).

Reporting for EasyKobo on Thursday, 5 July 2018 in Lagos, Nigeria

Source : Gregory Kronsten, Olubunmi Asaolu, Chinwe Egwim from FBNQuest Capital Limited.