Stay Away From Borrowing – Debt Management Office Warns FG

The Debt Management Office (DMO) has issued a warning to the Federal Government of Nigeria, cautioning against further borrowing. The DMO highlighted the alarming fact that 73.5 percent of the revenue generated this year will be used to service existing debts. It stressed that the Debt Service to Revenue ratio for 2023 is already high and cannot support increased levels of borrowing, posing a threat to debt sustainability.

In order to achieve a sustainable Debt Service-to-Revenue ratio, the DMO has advised the government to focus on increasing revenue generation. To achieve this, the DMO suggests that the Federal Government needs to raise its revenue from the projected N10.49 trillion in the 2023 budget to approximately N15.5 trillion.

These warnings were included in the Annual National Market Access Country (MAC) Debt Sustainability Analysis report released by the DMO. The report indicates that Nigeria’s Total Public Debt-to-GDP ratio is projected to rise to 37.1 percent in 2023, up from 23.4 percent in September 2022. This increase is primarily due to the inclusion of N8.80 trillion in new borrowings for 2023, the FGN Ways and Means at the Central Bank of Nigeria (CBN) totaling over N23 trillion, and an estimated issuance of Promissory Notes amounting to N2.87 trillion in the debt stock.

While the baseline scenario presented in the report suggests that Nigeria’s debt stock remains sustainable, it also highlights a reduced borrowing space compared to the self-imposed debt limit of 40 percent set in the Medium-Term Debt Management Strategy (MTDS) for 2020-2023. The report further reveals that the FGN Debt Service-to-Revenue ratio is projected to reach 73.5 percent in 2023, surpassing the recommended threshold of 50 percent due to low revenue. Consequently, there is an urgent need to significantly increase government revenue.

Considering an alternative scenario, the report indicates that the total public debt-to-GDP ratio in 2023 would be 45.4 percent, exceeding Nigeria’s self-imposed debt limit of 40 percent. Additionally, the FGN Debt Service-to-Revenue ratio would still exceed the recommended threshold of 50 percent.

Based on the analysis presented in the report, the DMO has made several recommendations. It advises against using the baseline analysis as a justification for higher levels of borrowing, as the more realistic shock scenario exceeded the self-imposed limit. The DMO also emphasizes the high FGN debt service-to-revenue ratio as a threat to debt sustainability and urges an increase in government revenue from N10.49 trillion to about N15.5 trillion to achieve a sustainable ratio.

To curb the expansion of fiscal deficits, the DMO calls for strict adherence to existing legislation on government borrowing, including the Fiscal Responsibility Act 2007 and the Central Bank of Nigeria Act 2007, especially in relation to Ways and Means advances. The DMO suggests implementing revenue mobilization initiatives and reforms, such as the Strategic Revenue Growth Initiatives, to raise Nigeria’s tax revenue to GDP ratio from its current low level of about 7 percent. Additionally, the DMO recommends encouraging private sector involvement through Public-Private Partnership (PPP) schemes and reducing budget deficits and borrowing by funding infrastructure projects through privatization or the sale of government assets.

The Federal Government will need to carefully consider these recommendations as it navigates the challenge of managing its debt and ensuring sustainable economic growth in the coming years.