The Debt Management Office (DMO) has expressed concerns over the Federal Government’s plan for additional borrowing, cautioning that it poses a threat to debt sustainability. In its Annual National Market Access Country (MAC) Debt Sustainability Analysis report for 2022, the DMO emphasized the high projected FGN Debt Service to Revenue ratio of 73.5 percent for 2023. The office advised the government to focus on increasing revenue generation to attain a sustainable Debt Service-to-Revenue ratio.
According to the analysis, the Total Public Debt-to-GDP ratio is projected to rise to 37.1 percent in 2023, an increase from 23.4 percent in September 2022. This projection includes new borrowings of N8.80 trillion for 2023, FGN Ways and Means at the CBN amounting to over N23 trillion, and estimated Promissory Notes issuance of N2.87 trillion.
While the baseline scenario suggests that the country’s debt stock remains sustainable, it highlights the reduction in borrowing space compared to Nigeria’s self-imposed debt limit of 40 percent set in the MTDS, 2020-2023. The analysis also reveals that the FGN Debt Service-to-Revenue ratio of 73.5 percent in 2023 exceeds the recommended threshold of 50 percent, underscoring the need for significant increases in government revenue.
Based on the results of the MAC-DSA analysis, the DMO provides the following recommendations:
1. The borrowing space of 2.9 percent (equivalent to about N14.66 trillion) should not be used as a basis for higher levels of borrowing, considering the outcome of the shock scenario that exceeded the self-imposed limit.
2. The projected FGN debt service-to-revenue ratio of 73.5 percent for 2023 is high and poses a threat to debt sustainability, necessitating an increase in FGN revenue from the projected N10.49 trillion in the 2023 budget to about N15.5 trillion.
3. Adherence to existing legislation on government borrowing, such as the Fiscal Responsibility Act 2007 and Central Bank of Nigeria Act, 2007, is crucial to moderate the growth rate of public debt.
4. Urgent attention should be given to revenue generation through comprehensive initiatives and reforms, including the Strategic Revenue Growth Initiatives, to raise the country’s tax revenue to GDP ratio.
5. The government should encourage private sector involvement in funding infrastructure projects through Public-Private Partnership (PPP) schemes and reduce budget deficits and borrowing by removing capital projects funded through borrowing.
It is imperative for the Federal Government to heed the advice provided by the DMO to ensure sustainable debt management and fiscal stability.
