DMO Decries Nigeria’s High Debt Service Cost to Revenue Ratio
Patience Oniha, Director General, Debt Management Office

DMO Decries Nigeria’s High Debt Service Cost to Revenue Ratio

The Nigerian Debt Management Office (DMO) has decried the country’s high debt service to revenue ratio, describing it as a major issue of concern.

Recalled that the nation’s debt book has in third quarter of 2020 crossed N32 trillion amidst the outbreak of coronavirus pandemic.

Mrs Patience Oniha, the Director-General of DMO, said this in Abuja on Thursday at the fifth Budget Seminar (webinar) organised by the Securities and Exchange Commission (SEC).

The theme of the budget seminar was, “Financing Nigeria’s Budget and Infrastructure Deficit through the Capital Market.”

2020 Budget: Debt Service Cost Includes Capital Repayment, Interest – FG

Oniha stressed the need for infrastructure built with borrowed funds to generate revenue to service the debts.

According to her, we have done the Sukuk, for instance, but government is the one servicing the debt of those Sukuk.

“They (the debts) are not being serviced with revenue from those sources (infrastructure).

“ I think that when we are talking about those innovations like revenue, bonds and all that, we should be talking about policies to ensure that the projects that we financed generate revenue,’’ she explained.

Dr Afolabi Olowookere, the Head of Economic Research and Policy Management Division of SEC, said the current system where government appeared to be the major financier of infrastructure projects was unsustainable.

Olowookere suggested that adequate cost recovery system be adopted for any infrastructure to be revenue generating.

“One major source for financing infrastructure is Public Private Partnership.

“Government must formulate policies and incentivise the development of domestic public debt markets,’’ he said.

Mr Oscar Onyema, the Chief Executive Officer of the Nigerian Stock Exchange (NSE), said the exchange was ready to support economic development in the country through infrastructural products.

Onyema said that it would work with supply and demand side to create the needed environment at the exchange for infrastructure development.

Use of Sovereign Guarantee

Nigeria plans increased use of sovereign guarantees to fund infrastructure in a bid to reduce the need for raising debt for such projects.

Africa’s largest economy will raise the value of these assurances to 5% of gross domestic product from 1.5% in 2019, Patience Oniha, head of the Debt Management Office, said at a conference in Lagos Thursday.

“On the part of the sovereign, we want to give guarantees,” Oniha said. “We can’t keep borrowing on balance sheet.”

Nigeria’s public debt, including central bank overdrafts, as a proportion of GDP at 34.4% in 2020, is relatively low compared to peers.

However, the West African nation spends more than a third of its revenue servicing its debt due to very low tax income.

The government is looking at guarantees as a way to trim public debt, Oniha said. Investors will be able to raise funding from banks and institutions based on the government guarantee.

A search is underway for an adviser to develop a framework to build capacity to identify, review and evaluate projects for sovereign guarantees, Oniha said.

“We are actually asking for an embedded adviser to handhold us through that process because we expect the volume of off-balance-sheet transactions to be significant,” she said.

Africa’s most populous country plans to boost infrastructure investments to stimulate economic growth after exiting its second recession in four years in the fourth quarter.

The nation needs at least $3 trillion over 30 years to close its infrastructure deficit, Moody’s Investors Service said in a November report.

DMO Decries Nigeria’s High Debt Service Cost to Revenue Ratio