FG Increases Debt-GDP Limit to 40%

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• Says limit below 55% W’Bank/IMF threshold

•Approves issuing promissory notes to settle arrears
Gboyega Akinsanmi

In a new drive to bridge funding gaps, the federal government has increased its borrowing limit from 25 per cent recommended under the 2016-2018 medium-term debt management strategy (MTDS) to 40 per cent in the 2021-2023 MTDS.

The apex government defended its new strategy on the ground that the borrowing limit “is well below a 55 per cent threshold, which the World Bank and International Monetary Fund (IMF) recommended for countries in Nigeria’s peer group.
This was contained in a document THISDAY yesterday obtained from the official website of the Debt Management Office (DMO), a government agency established to centrally coordinate the management of Nigeria’s debt.

The DMO had said Nigeria’s total debt profile rose to N31. 009 trillion ($85.897 billion) as of June 30, 2020. The figure comprises debt stock of the federal government, 36 states of the federation and the Federal capital Territory.

It had also claimed that the corresponding figures for March 31, 2020 were N28.628 trillion or USD79.303 billion. The increase in the debt stock by N2.381 trillion or $6.593 Billion was accounted for by the $3.36 Billion budget support loan from the IMF.

Amid rising public debt and dwindling national revenue recently, the DMO observed that it had prepared the 2020-2023 MTDS in collaboration with relevant stakeholders.

It listed the stakeholders to include the Federal Ministry of Finance, Budget and National Planning, Central Bank of Nigeria, Budget Office of the Federation, National Bureau of Statistics and the Office of the Accountant-General of the Federation.

It said the federal government “has increased from 25 per cent to 40 per cent in order to: accommodate new borrowings to fund budget deficits and other obligations of the federal government.”

It, also, disclosed that the federal government had resolved to issue promissory notes to settle government arrears; and, the ways and means advance at the Central Bank of Nigeria (CBN)
“This ratio is still well below the WB/IMF’s recommended threshold of 55 per cent for countries in Nigeria’s peer group,” the DMO said.

Based on the current public debt stock, the DMO said the federal government’s borrowing needs in the medium-term (as stated in the 2021 Appropriation Act, MTEF, 2021- 2023), as well as future global trends.

It added that borrowing “will be from domestic and external sources but a larger proportion of new borrowing will be from domestic sources using long-term instruments while for External Borrowing, concessional funding from multilateral and bilateral sources will be prioritised.”

Compared to the previous MTDS, DMO’s document revealed that total public debt to GDP was 10.35 per cent on December 31, 2015, the year President Buhari assumed office.
Under the 2016-2019 MTDS, the DMO revealed that the borrowing threshold increased to 19 per cent
In 2015, the DMO put the ratio of domestic debt to external debt to 84:16, though moved to 67:33 on December 31, 2019 contrary to a 60:40 target.

DMO’s document, also, revealed that the Federal Executive Council (FEC), at its meeting on February 10 approved the new Medium-Term Debt Management Strategy for Nigeria, for the period 2020-2023.
Under the new strategy, according to the DMO, the federal government will target a 10-year average tenor of obligations in its portfolio, mainly from the domestic markets, with long-term securities making up at least 70 per cent of the stock.

It said the new strategy “will also ensure that government
debt is sustainable.The implementation of the MTDS 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 FEC of the MTDS, 2020-2023, the strategy will be implemented to support economic development while ensuring that the public debt is sustainable,” the DMO wrote in its document.
It clarified that Nigeria “has had two Medium Term Debt Management Strategies (2012-2015 and 2016-2019), prior to the current strategy.

“The new strategy had to be re-worked to reflect the global and local economic impact of the COVID-19 pandemic and incorporates data from the revised 2020 Appropriation Act and the Medium-Term Expenditure Framework 2021-2023.
“Thus, 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 the federal government.
“The MTDS 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 2016-2019 MTDS included some Debt Management Targets. As can be seen from the Actual Outcome, the MTDS, 2016-2019 was applied in the borrowing activities of the government during the period which led to the high success rates achieved,” DMO further clarified its position.

In its latest report, the IMF said Nigeria’s public debt is projected to increase to 34 percent of GDP in 2020 from 29 per cent in 2019, and will rise to about 36.4 per cent in the medium term.
Interest payments as a proportion of revenues, estimated at 92.6 per cent in 2020, are projected to decline to 60.8 per cent in 2021. The figure would rise to 94.1 per cent of revenue by 2025, the lender said.