Nigeria Raised Debts/GDP Ratio to 40% over New Borrowings Plan
Patience Oniha - Director General, Debt Management Office

Nigeria Raised Debts/GDP Ratio to 40% over New Borrowings Plan

The Nigerian government has raised debt to gross domestic product (Debt/GDP) ratio to 40% in order to accommodate new borrowings to finance budget deficits, and other obligations of the government, says Debt Management Office.

The Federal Executive Council (FEC) has, at its meeting on Wednesday, approved a new Medium Term Debt Management Strategy (MTDS) for Nigeria, for the period 2020-2023.

DMO said the MTDS was a policy document that provided a guide to the borrowing activities of a government in the medium-term, which is usually four years.

It added that the policy is recognised as one of the best practices in public debt management and is recommended by the World Bank and International Monetary Fund (IMF).

The statement said this is to ensure that public debt management is driven by a well-articulated strategy that is structured to meet a country’s broader macroeconomic and public debt management objectives.

“The MTDS, 2020-2023 has been prepared by the DMO, in collaboration with Federal Ministry of Finance, Budget and National Planning and the Central Bank of Nigeria.

“Other collaborating stakeholders are the Budget Office of the Federation, National Bureau of Statistics and the Office of the Accountant-General of the Federation.”

The DMO revealed that Nigeria has had two previous MTDS (2012-2015 and 2016-2019), prior to the current Strategy, which was designed with a consideration of the impact of the COVID-19 pandemic.

“The new Strategy had to be re-worked to reflect the global and local economic impact of the COVID-19 pandemic and it incorporates data from the revised 2020 Appropriation Act and the Medium-Term Expenditure Framework 2021-2023.

“The new MTDS adequately reflects the current economic realities and the projected trends. The preparation of the MTDS usually involves the consideration of alternative funding strategies available to Government.

“It seeks to meet its financing needs, taking into consideration the cost of borrowing and the associated risks, while ensuring debt sustainability in the medium to long-term,” the DMO explained.

MTD target for the four years include fiscal sustainability which sets total public debt as percentage of gross domestic products at maximum of 40%.

DMO’s justification for the increase from 25% previously set is in order to accommodate new borrowing to fund budget deficit and government obligations, promissory notes to be issued to settled government arrears and Ways and Means advance at the Central Bank of Nigeria.

“The ratio is still below the International Monetary Fund and World Bank recommended threshold of 55% for Countries in Nigeria peer group”, it added.

Fiscal Deficit: FG Raised 67% of External Borrowing Plan – DMO

Meanwhile, the portfolio composition is adjusted to 70% domestic borrowing and 30% external as DMO said the target is set to further strengthen the domestic market and optimise access to both concessional and commercial sources of funding.

Also, on refinancing risk, the new MTD sets minimum of 10 years as average tenor of debt portfolio while its targets minimum of 75% long and maximum of 25% short term domestic debt mix.

“This is to sustain issuance of longer-tenored instruments with tenors of 10 years and above, in order to effectively manage refinancing risks”, DMO stated.

It stated that the implementation of the Medium-Term Debt Management Strategies over the years, has helped in managing the structure of the growing public debt, and ensured debt sustainability as well as effectiveness in public debt management.

“With the approval of the Federal Executive Council of the MTDS, 2020-2023, the Strategy will be implemented to support economic development while ensuring that the Public Debt is sustainable”, DMO stated.

Nigeria Raised Debts/GDP Ratio to 40% over New Borrowings Plan