The Debt Management Office (DMO) has issued a cautionary statement to the Federal Government, advising against additional borrowing News About Nigeria reports.
The DMO highlighted that a significant portion, 73.5 percent, of the revenue generated this year will be allocated toward servicing the country’s debt. This high Debt Service-to-Revenue ratio poses a threat to debt sustainability and cannot support increased levels of borrowing.
In light of this, the DMO emphasized the need for the Federal Government to focus on enhancing revenue generation.
It stressed that achieving a sustainable Debt Service-to-Revenue ratio would require increasing the projected FGN revenue from N10.49 trillion outlined in the 2023 budget to approximately N15.5 trillion.
These recommendations were put forth by the DMO following an analysis of the nation’s debt profile in 2022. The Annual National Market Access Country (MAC) Debt Sustainability Analysis report revealed that the Total Public Debt-to-GDP ratio is projected to rise to 37.1 percent in 2023, compared to 23.4 percent in September 2022.
This increase is attributed to factors such as the inclusion of N8.80 trillion in new borrowings for 2023, FGN Ways and Means at the CBN totaling over N23 trillion, and an estimated Promissory Notes issuance of N2.87 trillion.
While the baseline scenario suggests that the country’s debt stock remains sustainable, the borrowing space has diminished when compared to Nigeria’s self-imposed debt limit of 40 percent outlined in the MTDS 2020-2023.
Furthermore, 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. This reinforces the need for a substantial increase in government revenue.
Under the alternative scenario, the total public debt-to-GDP ratio in 2023 is projected to be 45.4 percent, exceeding Nigeria’s self-imposed debt limit of 40 percent. Similarly, the FGN Debt Service-to-Revenue ratio would also exceed the recommended threshold of 50 percent.
In light of the analysis conducted in the 2022 MAC-DSA, the DMO has made the following recommendations:
Despite the baseline analysis projecting a total public debt-to-GDP ratio of 37.1 percent for 2023, indicating a borrowing space of 2.9 percent (equivalent to approximately N14.66 trillion) compared to the self-imposed limit of 40 percent, it is advised that this should not serve as a basis for a higher level of borrowing, as was the case in the 2023 budget. This is due to the shock scenario outcome, which exceeded the self-imposed limit and is deemed more realistic given the circumstances.
The projected FGN debt service-to-revenue ratio of 73.5 percent for 2023 is high and poses a threat to debt sustainability. It implies that the current revenue profile cannot support increased levels of borrowing. Achieving a sustainable FGN debt service-to-revenue ratio will necessitate a revenue increase from the projected N10.49 trillion outlined in the 2023 budget to approximately N15.5 trillion.
With regard to expanding fiscal deficit, strict adherence to existing legislation on government borrowing is crucial. This includes the Fiscal Responsibility Act 2007 and the Central Bank of Nigeria Act 2007, particularly in relation to Ways and Means advances. Adhering to these provisions will help moderate the growth rate of public debt.
It is imperative to prioritize revenue generation by implementing comprehensive revenue mobilization initiatives and reforms, such as the Strategic Revenue Growth Initiatives and its pillars. The aim is to raise the country’s tax revenue to GDP ratio from its current level of around 7 percent, one of the lowest in the world, to that of its peer countries.
The government should encourage private sector participation in funding infrastructure projects through Public-Private Partnerships (PPP) and remove capital projects from the budget that rely on borrowing. This approach will reduce budget deficits and the need for borrowing.
The government can decrease borrowing through privatization and/or the sale of government assets.
The DMO’s recommendations underscore the need for the Federal Government to exercise caution regarding additional borrowing.
Instead, the focus should be on revenue generation, encouraging private sector involvement in infrastructure projects, and implementing measures to reduce budget deficits. These actions are essential for maintaining debt sustainability and safeguarding the country’s financial future.
