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HomeBusinessNigeria's debt-to-GDP ratio breaches 40% self-imposed limit ~DMO

Nigeria’s debt-to-GDP ratio breaches 40% self-imposed limit ~DMO

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Nigeria’s total public debt could rise to 37.1 percent of its gross domestic product (GDP) this year, close to the government’s self-imposed 40 percent limit, the country’s Debt Management Office (DMO) said on Thursday.

The debt office linked the projected rise in the debt-to-GDP ratio from 23.4 percent in September to new borrowing and a central bank loan-to-bond swap.

“The country’s debt stock remains sustainable under these criteria, but the borrowing space has been reduced when compared to Nigeria’s self-imposed debt limit of 40 percent,” it said in a report.

Nigeria has said it aims to borrow N8.8 trillion in 2023 to cover its budget deficit and has swapped temporary overdrafts worth N23 trillion into long-term bonds this year.

The debt office estimates Nigeria’s debt service-to-GDP ratio will reach 73.5 percent in 2023, exceeding a government limit of 50 percent due to low revenue collection.

“The Total Public Debt-toGDP ratio is projected to increase to 37.1 percent in 2023 relative to 23.4 percent as at September 2022, due to the inclusion of the N8.80 trillion (New Borrowings) for the year 2023, the FGN Ways and Means at the CBN of over N23 trillion and estimated Promissory Notes issuance of N2.87 trillion in the Debt stock under the Baseline Scenario.

“The Country’s Debt stock remains sustainable under these criteria, but the borrowing space has been reduced when compared to the Nigeria’s self-imposed debt limit of 40 percent set in the MTDS, 2020-2023.

“On the other hand, FGN Debt Service-to-Revenue ratio at 73.5 percent in 2023 exceeds the recommended threshold of 50 percent due to low revenue, which means that there is need to significantly increase Government revenue.

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“Under the Alternative Scenario, the Total Public Debt-to-GDP ratio at 45.4 percent in 2023 exceeds the Nigeria’s self-imposed debt limit of 40 percent, while the FGN Debt Service-to-Revenue also exceeds the recommended threshold of 50 percent,” the debt office stated in it sustainability report.

The DMO also noted that, although the Baseline analysis projects Total Public Debt-to-GDP ratio at 37.1 percent for 2023 indicating a borrowing space of 2.9 percent (equivalent of about N14.66 trillion) when compared to the self-imposed limit of 40 percent, it is recommended that this should not be used as a basis for higher level of borrowing as was the case in the 2023 Budget.

“This is 12 because the outcome of the Shock Scenario, which is more realistic in the circumstances, exceeded the self-imposed limit. ii. The projected FGN Debt Service-to-Revenue ratio at 73.5 percent for 2023 is high and a threat to debt sustainability. It means that the revenue profile cannot support higher levels of borrowing.

“Attaining a sustainable FGN Debt Service-to-Revenue ratio would require an increase of FGN Revenue from N10.49 trillion projected in 2023 Budget to about N15.5 trillion. iii. With respect to expansion in fiscal deficit, there is need to strictly adhere to the provision of extant legislations on Government borrowing, especially the Fiscal Responsibility Act 2007 and Central Bank of Nigeria Act, 2007 as it relates to Ways and Means Advances, in order to moderate the growth rate of public debt.

“There is urgent need to pay more attention to revenue generation by implementing far reaching revenue mobilization initiatives and reforms including the Strategic Revenue Growth Initiatives and all its pillars with a view to raising the country’s tax revenue to GDP ratio from about 7 percent (one of the lowest in the world) to that of its peer.

“Government should encourage the private sector fund infrastructure projects through the Public-Private Partnership schemes and take out capital projects in the Budget that are being funded from borrowing, thereby reduce budget deficit and borrowing.

President Bola Tinubu, who took office last month, is embarking on Nigeria’s biggest reform agenda in decades as he seeks to tackle the country’s debt burden, low economic growth, double-digit inflation, and mounting insecurity.

Nigeria expects restricted access to international capital markets in the near term after Moody’s downgraded its credit in January, the debt office said, adding it would seek help from development finance institutions, exporters, and international banks to bridge the gap in external financing.

Nigeria’s total public debt was around $103 billion as of September.

(omayowa@globalfinancialdigest.com; Newsroom: +234 8033 964 138)

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