Nigeria’s Debt Profile to Exceed N13tn Target
The federal government’s borrowings are expected to surpass the initial N13 trillion target to cover the budget deficit in 2025.
Analysts at Afrinvest Research, in their 2025 Outlook Report, projected that net issuances of at least N13.7tn may be required to bridge the gap between the proposed expenditure and revenue in the 2025 budget while not ruling out the possibility of a Eurobond market outing in the year.
The 2025 Federal Government budget proposal, themed ‘Budget of Restoration: Securing Peace, Rebuilding Prosperity,’ is set at N49.7tn, projecting a total revenue of N36.35tn anchored on improved non-oil revenue generation. This includes expanded tax collections, customs duties, and independent revenue from government-owned enterprises, alongside oil revenue projections based on a crude oil benchmark of $75 per barrel, a production target of 2.06 million barrels per day, and an exchange rate of N1,500 per USD.
The proposed budget is targeting a fiscal deficit of N13.39tn (3.96 per cent of GDP), which the FG said will be financed through domestic and external borrowings as well as innovative public-private partnership arrangements.
In the report, the analysts said, “The FG plans domestic and foreign borrowings of N7.4tn and N1.8tn to plug a budget deficit of N13.1tn in 2025. We estimate that domestic borrowing could exceed the target, requiring net issuances of N13.7tn minimum in 2025. Overall, we estimated inflows of N28.45tn from maturing bills and coupon payments against outflows via gross paper supply of N37.5tn. We also do not rule out the possibility of a Eurobond market outing in 2025.
“Consequently, we expect significant pressure in the domestic market to intensify, even as banks would gear up recapitalisation. Thus, we anticipate a strain on the system liquidity level in the year.”
According to their estimation, treasury bills are expected to bring the highest amount at N12.47tn, followed by OMO sales at N11.34tn. Total inflow is expected to be at the highest in the first quarter at N9.08tn.
Recall that Nigeria returned to the international debt market in November after a two-year hiatus, where it issued a dual-tranche Eurobond offering under its Global Medium Term Note Programme to finance the country’s 2024 fiscal deficit. The issuance was oversubscribed in excess of $9bn; however, the federal government eventually took just $2.2bn across both bonds. The FG sold $700m worth of the 6.5-year Eurobond maturing in 2031 at a coupon rate of 9.625 per cent and $1.5bn of the 10-year tenure at 10.375 per cent.
Expressing concerns about the debt situation of the country, economist and Chief Executive Officer of Economic Associates, Dr. Ayo Teriba, said, “There are right and wrong ways of borrowing. There are efficient ways and there are inefficient ways of borrowing. The foremost is the quality of the debt instrument that you issue.
Some countries with economies of comparable size borrow more heavily than we do but issue higher-grade bonds, investment-grade bonds, and borrow at a third of the rate at which we borrow. We borrow at some of the highest rates in the world, either domestically or abroad. So, we shouldn’t create the impression that it is a matter of whether we should borrow or not borrow. Part of the crisis that we have is that a third of the budget announced is going to go on interest payments alone.
“You shouldn’t continue to fund a deficit yearly with debt. If you look at your budget, you have debt as a possibility, but you also have equity as a possibility. The Nigerian government supports a thriving equity market on which the government has no issue. No state-owned company has any issue in the equity market at home or anywhere else in the world. We go every time to Europe; we don’t issue equity; we only issue debt.”
Earlier at the 13th Annual Conference of the Institute of Capital Market Registrars, Teriba had called for the securitisation of Nigeria’s N41tn assets to boost the financial resources available to the Federal Government.
