FG’s N7.84trn contingent liabilities raise fresh fiscal concerns

The Federal Government is exposed to N7.84 trillion in outstanding guarantees and contingent liabilities, with collateral for a $1.5 billion swap accounting for almost 35 per cent of the total, highlighting the potential fiscal risks confronting an administration already spending heavily to service domestic debt.

The Debt Management Office (DMO), in its report on Federal Government guarantees and contingent liabilities as of June 30, 2026, put the total exposure at N7.84 trillion across the power sector, financial institutions, infrastructure projects and pension obligations.

The largest item was N2.74 trillion in Federal Government bonds pledged as collateral for a $1.5 billion drawdown under a $5 billion Total Return Swap arrangement with First Abu Dhabi Bank. The bonds, which mature in May 2032, carry a coupon of 16.9556 per cent.

The exposure accounts for 34.99 per cent of the total, meaning more than one-third of the government’s recorded guarantees and contingent liabilities is concentrated in a single transaction.

Power-sector obligations represent another significant risk. Contingent liabilities arising from Put-Call Option Agreements for independent power projects stood at N1.88 trillion, or 23.93 per cent of the total.

The Bank of Industry’s guarantee for its €750 million Eurobond amounted to N1.18 trillion, representing 15.04 per cent, while the guarantee for Lekki Port Free Trade Zone Enterprise stood at N804.96 billion, equivalent to 10.27 per cent.

Together, the swap collateral, power-sector obligations and Bank of Industry guarantee account for about N5.80 trillion, or nearly 74 per cent of the reported exposure.

Other obligations include N501.02 billion under the first series of the Nigeria Bulk Electricity Trading (NBET) power-sector bond programme and N374.88 billion in pension arrears for Federal Government ministries, departments and agencies.

The DMO also listed N329.80 billion in partial risk guarantees for power projects, alongside smaller exposures involving the Federal Mortgage Bank of Nigeria and the Nigeria Mortgage Refinance Company.

The figures matter because guarantees and contingent liabilities can create additional pressure on public finances if the underlying borrowers or projects fail to meet their obligations and the government is required to intervene. They do not, however, automatically represent cash payments currently due from the Treasury.

The exposures come against the backdrop of substantial debt-servicing obligations. The Federal Government spent N5.28 trillion servicing domestic debt in the first half of 2026, with interest and rental payments accounting for N4.95 trillion.

The combination of large financing costs and contingent exposures underscores the importance of monitoring not only the government’s recognised debt stock but also obligations that could crystallise under adverse conditions.

Power-sector guarantees are particularly significant because the government has repeatedly intervened to address financial weaknesses in the electricity market. While such support can help sustain infrastructure and electricity supply, it also creates fiscal risks where commercial revenue is insufficient to cover costs.

The Lekki port guarantee similarly illustrates the government’s role in supporting strategic infrastructure investment, while the Bank of Industry guarantee provides backing for financing intended to support industrial development.

For policymakers, the challenge is to balance the economic benefits of such interventions against the risks they create for public finances.

With domestic debt servicing already absorbing trillions of naira, improved disclosure, stronger risk assessment and regular monitoring of guaranteed obligations will be critical to preventing contingent exposures from becoming additional demands on government revenue.