Serving of Domestic Debt

A report by the Financial Markets Department of the Central Bank of Nigeria (CBN) has revealed that the serving of domestic debt instruments cost the Federal Government a whopping N1.799 trillion in 2018.

The figure represents a 23.65% rise or an increase of N344.21 billion when compared to the N1.455 trillion recorded at the end of 2017.

Why the cost increase? The CBN report goes further to attribute the steep rise to “the coupon payments of new instruments (such as FGN Sukuk, Green Bonds, and FGN Savings Bonds) that formed part of the debt stock.”

Breakdown of the cost: Going by the statistics, FGN Bonds coupon payments (special Bonds inclusive) of N1.118 trillion (62.16%) took the chunk, while Non-Tariff Barriers (NTB) interest gulped N640.68 billion (34.6%).

A drop in Domestic Debt: According to the report, floating rate notes Treasury Bonds amounted to N23.84 billion or 1.32%, while FGN Sukuk was N16.47 billion or 0.92%. The FGN domestic debt outstanding at the end of 2018 was N12.443, implying a drop of N146.35 billion or 1.16% below the 2017 year-end figure of N12.589 trillion.

The report linked the gradual reduction of domestic debt to the redemption of NTBs of N78.05 billion in December 2008 from the proceeds of Eurobond.

It also affirms that the CBN sustained its direct involvement in the inter-bank forex market in 2018 as a measure to mitigate demand pressure, as well as ensure exchange rate stability.

More Details: Total spot sale was $25.677 billion while forward sales added up to $11.054 billion. The report claims the spot sales were made up of $3.453 billion at the interbank, $1.581 billion for invisible, $1.315 billion for SMEs and $8.272 billion at the Investors and Exporters (I & E). It claims the CBN bought $7.802 at the inter-bank market. Net sales by the CBN totaled $17.874 billion. $10.400 billion matured at the forwards segment while amount outstanding at the end of 2018 was $2.760 billion.

Total sales in 2017, according to the CBN, stood at N15.816 billion, with $4.617 billion and $11.199 billion as spot and forward transactions respectively. Similarly, the CBN purchased $6.090 billion, which culminated in a net sale of $9.725 billion.  $10.731 billion matured at the forwards while $1.921 billion was the amount outstanding at the end of 2017.

Coronation Research

Surge in transaction volume explained: The report stresses that the sharp surge in the volume of transactions in 2018 resulted from factors including the Central Bank’s foreign exchange policy, its management, and increase in the levels of foreign reserves during the year.

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