By Uche Usim
The Debt Management Office (DMO) has reported a rise in Nigeria’s domestic debt stock, reaching N66.957 trillion by mid-2024, an 8.74% increase from N61.578 trillion at the end of the first quarter.
The increase reflects an additional N5.379 trillion in domestic debt accumulated during the second quarter, raised through FGN Bonds, Nigerian Treasury Bills (NTBs), FGN Savings Bonds, and Promissory Notes issued by the DMO and Central Bank of Nigeria (CBN).
At the close of Q1 2024, the total domestic debt had already climbed to N61.578 trillion, a 15.62% increase from N53.258 trillion in December 2023. This indicates a rapid borrowing pattern, with the government incurring an additional N8.32 trillion in Q1, signaling a more intense borrowing phase early in the year compared to Q2.
The surge in debt has been driven by the government’s urgent need to finance a growing budget deficit, initially projected at N9.1 trillion; about 3.8% of GDP; at the start of the year.
An additional N6.2 trillion supplementary budget has since expanded the deficit beyond initial estimates. Another key driver has been the CBN’s inflation-control strategy, which has aimed to absorb excess liquidity by raising interest rates and encouraging investment in government securities that offer tax-free, risk-free returns.
The strategy saw Nigeria’s money supply (M3) expand by 56.32% year-on-year, reaching N101.461 trillion by June 2024, up from N64.906 trillion in June 2023, and further rising to N108.954 trillion by September 2024.
However, the CBN’s monetary tightening has raised debt servicing costs, reflecting the complex balance between debt financing and inflation control.
FGN Bonds remain the primary debt instrument, accounting for N52.315 trillion or 78.13% of the total domestic debt as of June 2024. Of the N13.699 trillion raised in H1 2024, FGN Bonds contributed N8.055 trillion, representing 58.8% of the newly acquired debt. NTBs, the second-largest contributor, reported a debt stock of N11.808 trillion (17.64% of the domestic debt) and added N5.286 trillion to the overall debt during the period.
Promissory Notes followed with a debt stock of N1.671 trillion, comprising 2.5% of the domestic debt, while FGN Savings Bonds, the smallest contributor, accounted for N55.2 billion (0.08% of the total debt) and contributed N16.091 billion in additional debt.
Other instruments like FGN Sukuk and Green Bonds saw no new issuances during H1 2024. The FGN Sukuk remained at N1.092 trillion, while Green Bonds, last issued in 2019, stayed on the debt stock, with repayment due by 2026.
With deficit pressures mounting, the government is expected to increase domestic borrowing in the coming quarters. A new “domestic dollar bond” introduced in Q3 2024 is likely to contribute further to rising debt levels. For investors, the CBN’s continued interest rate hikes to manage inflationary pressures should mean increased returns on government securities.
These fiscal dynamics highlight methe rising cost of debt servicing and reflect the government’s growing reliance on domestic financing to sustain budgetary needs amidst a challenging economic climate.