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HomeTop NewsNigeria must raise its revenue significantly to avoid debt distress, says DMO

Nigeria must raise its revenue significantly to avoid debt distress, says DMO

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Nigeria’s debt management office on Wednesday said that the only way the country can avoid debt distress is by raising its revenue generation significantly beyond current levels.

The Debt Management Office (DMO) in a statement on Wednesday defending the country’s Eurobond issuance to fund its spending plans, said that with revenue-to-GDP at just 6.3 per cent, Nigeria has one of the lowest ratios in the world.

While other developing and advanced countries have higher debt as a proportion of gross domestic product than Nigeria, the nation’s revenue-to-GDP ratio is much lower, the DMO said.

Citing the World Bank’s Economic Outlook for 2020 report, the debt office said Nigeria has one of the lowest revenue to GDP ratios in the world, placing it 194 out of 196 countries.

The statement was in response to criticism from a member of Nigeria’s rate-setting Monetary Policy Committee (MPC) that Nigeria risks debt distress due to its Eurobond obligations.

The increasing accumulation of Eurobonds in the external debt component is worrisome, Robert Asogwa, a member of the MPC said, according to transcripts of the May meeting published on the Central Bank of Nigeria’s website.

“The unexplained government preference of Eurobonds at high-interest costs, with the associated exchange rate risk, may likely hurt Nigeria sooner than anticipated,” he said.

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Africa’s largest economy had total outstanding debt of $100 billion as of March 31, according to the latest figures from the DMO.

External loans comprising concessional and commercial debt stood at $40 billion, with the balance of $60 billion owed to domestic issuers.

Yields on Nigeria’s external borrowings have risen sharply since Russia’s invasion of Ukraine — to an average of 12 per cent — increasing the country’s debt service burden, which already consumes more than 90 per cent of government income.

The DMO said that the country has had to issue Eurobonds due to the size of the annual budget deficit and the need not to crowd out the private sector from domestic capital markets.

“The public should take into cognizance other benefits of Eurobonds, which include an increase in the level of external reserves, and opening up of opportunities for the private sector to issue” similar debt since 2011, the DMO said.

The DMO stated that the borrowing needs are derived from the Annual Budgets while the borrowing mix is based on the subsisting Debt Management Strategy.

“Successive Debt Management Strategies have often indicated that the Federal Government of Nigeria’s (FGN) preferred source of external borrowing is concessional sources rather than commercial sources such as Eurobonds.

“For instance, one of the objectives of the Debt Management Strategy 2020-2023 is “Maximizing funds available to Nigeria from Multilateral and Bilateral sources in order to access cheaper and long tenored funds, whilst taking cognizance of the limited funding envelopes available to Nigeria, due to Nigeria’s classification as Lower-Middle-Income country.”

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