The Debt Management Office (DMO) reports that the federal government’s domestic debt stock by instrument reached N66.957 trillion by the first half of 2024, marking an 8.74% increase from N61.578 trillion at the end of Q1.
The government incurred N5.379 trillion in additional debt locally during Q2 2024 through financial instruments such as FGN Bonds, Nigerian Treasury Bills (NTB), FGN Savings Bonds, and Promissory Notes, facilitated by the DMO and the Central Bank of Nigeria (CBN).
As of Q1 2024, FG’s total domestic debt stood at N61.578 trillion, reflecting a 15.62% increase from N53.258 trillion recorded at the end of December 2023.
This indicates that the government incurred N8.32 trillion in additional debt within the first three months of the year, highlighting a more aggressive borrowing pattern in Q1 compared to Q2 2024.
Drivers behind the spike
- The debt stock has risen significantly due to the government’s urgent need to finance the economy, driven by a substantial budget deficit forecast of N9.1 trillion at the beginning of the year, equivalent to approximately 3.8% of GDP.
- The deficit has since exceeded initial projections, with a supplementary budget of N6.2 trillion introduced later in the year.
- Additionally, the increase in debt stock has been influenced by the Central Bank of Nigeria’s (CBN) strategy to curb inflation by reducing excess money in circulation.
- To achieve this, the CBN has continuously raised the monetary policy rate, providing an incentive for investors to purchase government securities, which are considered risk-free and offer tax-exempt returns.
- Nigeria’s money supply (M3) grew by 56.32% year-on-year (YoY), reaching N101.461 trillion in June 2024, up from N64.906 trillion in June 2023.
- By the end of September 2024, the money supply had further increased to N108.954 trillion.
- The potential downside of CBN’s monetary policy tightening is the substantial increase in the cost of servicing these borrowings.
Domestic debt stock instruments
- FGN Bonds remained the dominant debt instrument in FG’s domestic debt stock, accounting for N52.315 trillion or 78.13% of the total domestic debt as of June 2024. Of the N13.699 trillion raised in the first half of the year, FGN Bonds contributed N8.055 trillion, representing 58.8% of the additionally incurred debt.
- Nigerian Treasury Bills (NTBs) followed as the second-largest contributor, with a total debt stock of N11.808 trillion, comprising 17.64% of the domestic debt stock. The federal government raised N5.286 trillion through NTBs during the period, accounting for 38.59% of the total debt raised in H1 2024.
- Promissory Notes recorded a debt stock of N1.671 trillion, making up 2.5% of the domestic debt. Within the period, N342.654 billion was raised through this instrument, representing 2.5% of the additional debt incurred.
- FGN Savings Bonds, the smallest contributor, accounted for just N55.2 billion of the total debt stock, or 0.08%. Additional debt raised through this instrument amounted to N16.091 billion, representing a marginal 0.12% of the total debt incurred.
- Other instruments include FGN Sukuk and Green Bonds. The FGN Sukuk maintained an opening balance of N1.092 trillion as no new Sukuk bonds were issued in H1 2024. Similarly, Green Bonds, last issued in June 2019, remained on the debt stock, with repayment due in 2026.
- Notably, the Nigerian Treasury Bond appeared in the debt portfolio during the corresponding period in June 2023 but recorded no outstanding debt as of the beginning of 2024.
Outlook for domestic borrowing
- With rising deficits, FG is poised to intensify domestic borrowing in subsequent quarters. The government introduced additional debt instruments in Q3 2024 called ‘domestic dollar bond’, likely to increase domestic debt levels further.
- For investors, higher returns on debt instruments are anticipated as the CBN continues to increase the monetary policy rate in response to inflationary pressures.
- These dynamics underscore the increasing cost of debt servicing and the growing reliance on domestic markets for fiscal financing.