Managing Nigeria’s Debt Portfolio

managing Nigeria's debt portfolio

By Otori Emmanuel

The fact that Nigeria’s debt profile keeps increasing without any corresponding economic growth is very concerning. In January 2023, President Muhammadu Buhari authorized the appropriation bill, originally proposed to be voted into law for N20.51 trillion, to be increased to N21.83 trillion. The president then announced a planned loan of N1 trillion that will be sourced by Ways and Means, totalling a bill of N23 trillion that will be securitized.

According to the Debt Management Office (DMO), the incoming administration is expected to inherit a debt stock of N77 trillion in May or June 2023.

The DMO is a governmental office responsible for managing Nigeria’s debt portfolio. The management of public debt is as crucial as generating revenue. However, public debt management aims to guarantee that the government’s financial requirements and payment commitments are met over the term at the lowest cost possible, along with a reasonable level of risk.

Nigeria’s economy continues to be in a gloomy position due to poor management of debt and the constant rise in inflation. To revive the economy, the government might employ various measures for controlling and servicing existing and future debt.

Sound Debt Management Strategy

Many problems with public debt management might be linked to policymakers’ disregard for the benefits of sound debt management. This uncertainty can be decreased with a proven track record of implementing sensible macro policies, assessing risk and cost considerations, coordinating debt and utility accountability, repeating the debt limit, and reevaluating the costs of the debt burden. It will be vital for the government to improve its debt management processes, including outlining precise rules for borrowing money and ensuring that it is done in a transparent and accountable way.

Financial Reforms

Instead of raising the tax rate for current taxpayers, the tax net can be widened. The government would generate more income and have less debt to pay off if more taxpayers paid their fair share of taxes.

Also, the government’s revenue would increase dramatically with even a slight increase, which might result in lowered tax rates for all taxpayers. To lessen its reliance on short-term financing, the government must take action by going for longer-term obligations. If bonds are issued, this can mean increasing the long-term financing options available.

Even though the crisis of the country is not majorly caused by the debt management policies, the governments should make an effort to guarantee that the rate of rise of their public debt is structurally manageable and can be repaid under a variety of conditions while satisfying risk and cost obligations.

Furthermore, it is important to carefully build public debt portfolios, considering the foreign debt’s currency composition, term structure, and interest rate commitments. Enhancing economic growth should be the government’s top priority, as this would necessitate a combination of structural reforms and focused investments in major sectors of the economy.

Therefore, conscious efforts must be made to eliminate the high rates of fraud and waste in governmental operations and diversify the nation’s productive capacity.

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