DMO: Nigeria’s Debt Burden Indicators May Deteriorate Without Increase in Revenue Profile

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Ndubuisi Francis in Abuja

The Debt Sustainability Analysis (DSA) carried out in 2016 by the Debt Management Office (DMO) in collaboration with relevant stakeholders indicated that for the first time since Nigeria exited the London and Paris clubs of creditors between 2005 and 2006, the nation’s debt position experienced some deterioration and slipped from a “low-risk of debt distress to a medium risk of debt distress.”

According to the DMO, this points to a direction that Nigeria’s debt burden indicators might deteriorate in the medium-to-long-term, if adequate measures were not put in place to raise the revenue profile of the country.

The DMO stated in its 2016 Annual Report and Statement of Accounts that it carried out the DSA alongside the Ministry of Finance, Ministry of Budget and National Planning, Budget Office of the Federation, National Bureau of Statistics (NBS), Office of the Accountant General of the Federation, and Securities and Exchange Commission (SEC).

From the analysis, the DMO observed that although the level of debt stock was still appreciably low relative to the country’s aggregate output (GDP), the debt portfolio remained mostly vulnerable to the various shocks associated with revenue, exports and substantial currency devaluation.

“This indicates that Nigeria’s debt burden indicators might deteriorate in the medium-to-long-term if adequate measure were not put in place to raise the revenue profile of the country,” the DMO report cautioned.

Based on the latest debt statistics released by the DMO, Nigeria’s total debt stock (including federal and states) owed foreign and domestic creditors stands at N19.16 trillion.

The statistics also depicted that the nation’s debt rose by N7.1 trillion in two years.

Also, in its latest annual report and statement of accounts, the DMO statead that as at December 2016, the nation’s debt stood at N17.36 trillion, up from N12.6 trillion a year earlier.

This reflects a N4.76 trillion rise in 2016 or a 37.74 per cent increase within a year.

By March 31, 2015, the country’s total debt stood at N12.06 trillion and stands currently at N19.16 trillion the report, meaning that the debt level increased by N7.1 trillion in two years.

The DMO attributed the substantial increase mainly in the domestic debt component to additional issuance of debt securities to fund the 2016 budget deficit and the refinancing as well as the redemption of matured securities.

According to the DMO, the increase in borrowing could be considered from the deficits contained in both the 2015 and 2016 budgets in relation to the Gross Domestic Product.

“In 2016, the government continued to rely on borrowing mainly from multilateral and bilateral sources on concessional terms to finance public development programmes, by addressing critical infrastructure needs, and rebalance the total debt portfolio, so as to achieve the optimal debt portfolio composition of 60:40 for domestic and external debts, respectively in the medium-term.”

DMO said in the report: “In line with the new debt management strategy, there would be a shift of focus to external borrowing, including the international capital market, as a way of diversifying government’s funding sources, reducing debt service costs and creating opportunities for other domestic economic agents to access external financing.”

The International Monetary Fund (IMF) had recently projected that Nigeria’s debt would rise to 24.1 per cent of the nation’s Gross Domestic Product (GDP) by 2018 even as it said the nation’s indebtedness would have peaked at 23.3 per cent of the GDP by the end of 2017.

The World Bank had also recently expressed apprehension over Nigeria’s debt service-to-revenue ratio, arguing that reduced earnings might render the country’s debt unsustainable.

The ratio of of Nigeria’s total public debt-to-GDP was 16.27 per cent in 2016, compared to 13.02 per cent in 2015/
This ratio, the DMO report added, was still within the country’s specific limit of 19.39 per cent in the medium-term, up to 2017, and far below the Country Policy and Institutional Assessment (CPIA) threshold of 56.00 per cent of countries in Nigeria’s peer group- as well as West Africa Monetary Zone’s (WAMZ) 70.00 per cent.

At the end of 2016, Nigeria’ posted a debt-to-GDP ratio of 18.6 per cent, which contrasts with a debt-to-GDP ratio stood at 12.1 per cent by the end of 2015.

A noticeable of Nigeria’s debt profile is that it is dominated by local debts, and are characterised by high interest rates.
The DMO and relevant organs of the government are making efforts to secure more foreign loans with the aim of reducing the exposure of the federal government to the domestic debt market.

The government has said it is lessening its domestic borrowing in order not to crowd out the private sector.
There has been increasing concern over the nation’s mounting debt profile in recent times.