Stay Away From Borrowing More, DMO Warns FG

The Debt Management Office (DMO), has cautioned the Federal Government against more borrowing.

Noting that the projected FGN Debt Service to Revenue ratio of 73.5 percent for 2023 is high, the office warned that additional borrowing would be a threat to debt sustainability.

Stressing that attaining a sustainable Debt Service-to-Revenue ratio will require increasing FGN revenue from N10.49 trillion projected in 2023 budget to about N15.5 trillion, the DMO advised government to focus on increasing revenue generation.

The recommendations were part of reports of the Annual National Market Access Country (MAC) Debt Sustainability Analysis of the nation’s debt profile in 2022.

The analysis of the results of 2022 MAC-DSA, indicated that the “Total Public Debt-to-GDP 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.

“Baseline Scenario: 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 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.

“Under the alternative scenario, the total public debt-to-GDP ratio at 45.4 percent in 2023 exceeds Nigeria’s self-imposed debt limit of 40 percent, while the FGN Debt Service-to-Revenue also exceeds the recommended threshold of 50 percent.”

Based on the analysis of the results of the 2022 MAC-DSA, the DMO recommends the following:

“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 because the outcome of the shock scenario, which is more realistic in the circumstances, exceeded the self-imposed limit.

“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 will require an increase of FGN revenue from N10.49 trillion projected in 2023 budget to about N15.5 trillion.

“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 mobilisation 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, PPP, schemes and take out capital projects in the budget that are being funded from borrowing, thereby reducing budget deficit and borrowing.

“Government can reduce borrowing through privatisation and/or sale of government assets.”