Adedapo Adesanya
By Adedapo Adesanya
The Debt Management Office (DMO) has issued a warning to the federal government against additional borrowing, citing that 73.5 per cent of this year’s revenue will be used to service debt.
According to the fresh recommendations by the DMO to the Bola Ahmed Tinubu-led government, this high debt service-to-revenue ratio is unsustainable and poses a threat to debt sustainability.
The DMO recommended that the FG focus on increasing revenue generation to achieve a sustainable debt service-to-revenue ratio.
It suggested raising the projected FGN revenue from N10.49 trillion to about N15.5 trillion and noted that these recommendations were made after analysing the nation’s debt profile in 2022.
DMO’s analysis revealed that the total public debt-to-GDP ratio is projected to increase to 37.1 per cent in 2023, mainly due to new borrowings, FGN Ways and Means at the CBN, and estimated Promissory Notes issuance.
“While the baseline scenario indicates that the debt stock remains sustainable, the borrowing space has been reduced compared to the self-imposed debt limit of 40 per cent.
“The projected FGN Debt Service-to-Revenue ratio of 73.5 per cent for 2023 exceeds the recommended threshold of 50 per cent due to low revenue. This highlights the urgent need to significantly increase government revenue.”
The DMO emphasized the importance of adhering to existing legislation on government borrowing, such as the Fiscal Responsibility Act 2007 and the Central Bank of Nigeria Act 2007, to moderate the growth rate of public debt.
Furthermore, the DMO called for a focus on revenue mobilization initiatives and reforms to increase the country’s tax revenue to GDP ratio.
It also suggested encouraging private sector involvement in funding infrastructure projects through Public-Private Partnerships (PPP) and reducing borrowing by privatization or sale of government assets.
Results of 2022 MAC-DSA showed that the Total Public Debt-to GDP ratio is projected to increase to 37.1 per cent in 2023 relative to 23.4 per cent as of September 2022 due to the inclusion of the N8.80 trillion (New Borrowings) for the year 2023, the Ways and Means at the central bank 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 Nigeria’s self-imposed debt limit of 40 per cent set in the MTDS, 2020-2023.
On the other hand, FGN’s Debt Service-to-Revenue ratio at 73.5 per cent in 2023, which exceeds the recommended threshold of 50 per cent due to low revenue, which means that there is a need to significantly increase government revenue.
Under the alternative scenario, the total public debt-to-GDP ratio at 45.4 per cent in 2023 exceeds Nigeria’s self-imposed debt limit of 40 per cent, while the FGN Debt Service-to-Revenue also exceeds the recommended threshold of 50 per cent.
