Govt caps public debt at 40% of GDP

Written by on February 11, 2021

The cap for public debt has been raised to 40 per cent of Gross Domestic Product (GDP).

It was increased from 25 per cent “in order to accommodate new borrowings to fund budget deficits and other obligations of the government,” according to the Debt Management Office (DMO).

The DMO said the ratio “is still well below the World Bank/ International Monetary Fund (WB/IMF’s) recommended threshold of 55 per cent for countries in Nigeria’s peer group”.

The DMO added that from 2020 to 2023 when this new borrowing strategy will last, “borrowing will be from domestic and external sources but a larger proportion of new borrowing will be from domestic sources using long-term instruments while External Borrowing will be prioritized concessional funding from multilateral and bilateral sources”.

Portfolio Composition from 2020 to 2023 will be in the mix or ratio of, Domestic 70 per cent: External 30 per cent. This the DMO said is “to further strengthen the domestic debt market and optimize access to both Concessional and Commercial sources of funding”.

With regards to refinancing new debts, the DMO said the government will be doing an average Tenor of Debt Portfolio of 10 years minimum while long-Term to Short-Term Domestic Debt Mix will be in the ratio of 75%:25%. This the DMO said “is to sustain the issuance of longer-tenored instruments with tenors of 10 years and above, in order to effectively manage refinancing risks”.

The implementation of the Medium-Term Debt Management Strategies over the years, “has helped in managing the structure of the growing public debt, and ensured debt sustainability, as well as effectiveness in public debt management”.

The DMO assured that the Strategy will be implemented to support economic development while ensuring that the Public Debt is sustainable”.

The Medium-Term Debt Management Strategy (MTDS) is a policy document that provides a guide to the borrowing activities of the government in the medium-term, usually four (4) years.

It is recognized as one of the best practices in public debt management and is recommended by the World Bank (WB) and International Monetary Fund (IMF) to ensure that public debt management is driven by a well-articulated Strategy that is structured to meet a country’s broader macroeconomic and public debt management objectives.

The MTDS, 2020-2023 was prepared by the Debt Management Office (DMO), in collaboration with the Federal Ministry of Finance, Budget and National Planning; Central Bank of Nigeria; Budget Office of the Federation; National Bureau of Statistics and the Office of the Accountant-General of the Federation.

According to the DMO, “Nigeria has had two (2) Medium Term Debt Management Strategies (2012-2015 and 2016-2019), prior to the current Strategy”.

The new Strategy it said “had to be re-worked to reflect the global and local economic impact of the COVID-19 Pandemic and incorporates data from the revised 2020 Appropriation Act and the Medium-Term Expenditure Framework 2021-2023. Thus, the new MTDS adequately reflects the current economic realities and the projected trends”.

The Federal Executive Council (FEC) yesterday approved the new Medium-Term Debt Management Strategy (MTDS) for the 2020-2023.

 



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