Home Business Nigeria’s debt rises as DMO warns against unrestrained borrowing

Nigeria’s debt rises as DMO warns against unrestrained borrowing

by Business News Report

*FG can only borrow N1.6trn local, N4.8trn external
*30% of budget should go for capital investments
Nigeria’s total external debt stock outstanding rose to $10.71843 billion as at end of December, 2015 from $9.71145 billion at the end of the corresponding period in 2014. This fact is contained in the new report released by the Debt Management Office, DMO. The increase in debt stock was $1.00698 billion or 10.37 percent above the figure at the end of December 2014. The rise is as a result of additional disbursements from 14 existing multilateral and bilateral creditors, as well as net adverse cross exchange rate movements between the different currencies in the external loan portfolio.
The Debt Management Office in the report said that the maximum amount that Nigeria can borrow in 2017 from both local and foreign sources is $22.08 billion without it violating its debt threshold. The report said that Nigeria had a borrowing space of 5.89 per cent of its GDP of $374.95 billion which will take its debt limit Nigeria has set for itself, a threshold of 19.39 percent of the nation’s total public debt-to-GDP ratio.
The DMO report said “for the fiscal year 2017, the maximum amount that could be borrowed is $22.08 billion, and it is proposed to be obtained from both the domestic and external sources as follows: new domestic borrowing $5.52 billion; equivalent of about

N1.600.trillion; and, new external borrowing of $16.56 billion equivalent of about
N4.800 trillion.
“It is worthy to note that these are recommended maximum amounts that could be borrowed, taking into account the absorptive capacity of the domestic debt market and the options available in the external market. It is expected that such external borrowings, which would be long-term, minimum 15 years, would be strategically deployed to fund priority infrastructure projects that would boost output, and put the economy on the path of sustainable recovery and growth. It is further expected that the long maturity profile of such loans would enable the economy to be sufficiently diversified for increased export earnings for ease of debt service payments”.
The DMO report said “the key policy recommendations of the 2016 Debt Sustainability Report DSA, exercise are as follows: The end-period NPV of Total Public Debt-to-GDP ratio for 2016 for FGN is projected at 13.5 percent. Given the Country-Specific threshold of 19.39 percent for NPV of Total Public Debt-to-GDP ratio up to 2017, the borrowing space available is 5.89 per cent of the estimated GDP of $374.95 billion for 2017. To this end, the maximum amount that could be borrowed, domestic and external, by the FGN in 2017 without violating the country-specific threshold will be $22.08 billion (i.e. 5.89 percent of $374.95 billion.
“The Debt Management Strategy, 2016-2019, provides for the rebalancing of the debt portfolio from its composition of 84:16 as at end-December, 2015, to an optimal composition of 60:40 by end-December, 2019 for domestic to external debts, respectively. It supports the use of more external finance for funding capital projects, in line with the focus of the present Administration on speeding up infrastructural development in the country, by substituting the relatively expensive domestic borrowing in favour of cheaper external financing.
“This policy stance has been reinforced by the recent deterioration in macroeconomic variables, particularly with respect to the rising cost of domestic borrowing. Hence, the shift of emphasis to external borrowing would help to reduce debt service burden in the short to medium-term and further create more borrowing space for the private sector in the domestic market.
“There is an urgent need for the Government to formulate an Economic Blueprint or Road-Map for the medium-term. Aside from addressing the current challenges, it would go a long way to engender confidence in both local and international investors on the way forward. This has become very imperative, given that investor-perception of a country’s outlook is critical to its economic recovery. It is advisable that the Federal Government sustains the on-going reforms and initiatives in the various key sectors of the economy, including: agriculture, education, housing, power, and transportation, as this would foster the needed inclusive economic growth and development. In view of the continued deterioration in government’s revenue, occasioned by the drastic fall in the price of oil, government should reinforce its initiatives aimed at diversifying the productive base of the economy and, thus, improve the non-oil revenue receipts. Accordingly, concrete and urgent steps should be taken to broaden the tax base and improve efficiency in tax administration and collection.
“Given the country’s huge infrastructural needs, the Government is encouraged to sustain the policy of allocating a minimum of 30 percent of Federal Government’s budget to capital investments, as well as ensuring judicious utilization of such funds for infrastructure development. In view of the adverse effect on the economy of the recurring delays in budget formulation and passage, there is the need for the Government to ensure strict adherence to the annual budget calendar, so as to facilitate growth recovery, reduce fiscal slippages and delays in budget implementation.
“The passage of the Petroleum Industry Bill (PIB) by the National Assembly is long overdue and should be given speedy attention by the authorities. Its passage is expected to liberalise the oil and gas sector, and thus, attract more investments into the sector, which will have positive multiplier effect on the economy. Given that in the short to medium-term, oil would still remains a key revenue earner of the nation, the Federal Government is encouraged to continue on its efforts to curtail crude oil production disruptions in the oil producing areas.
“In view of the country’s huge infrastructure requirements, the Federal Government is enjoined to creatively explore other alternative and viable sources of financing critical infrastructure development outside the routine budgetary process. These may include the setting up of an Infrastructure Development Fund, the issuance of Infrastructure-tied Bonds, as well as encouragement for the private sector to participate in funding viable infrastructural projects through Public-Private-Partnership arrangements.
“As part of the initiatives for boosting revenue, the Federal Government is encouraged to fast-track the process of liberalising the exploration of the solid minerals deposits across the country. This is to make the sector much more attractive and competitive, and further expand the non-oil revenue base. As part of government’s commitment to encouraging private sector participation in the development of the economy, the demand for FGN Guarantees may likely increase. In order to instill discipline and discourage frivolous requests that may unduly expose the Federal Government, it is also recommended that the issuance of FGN Guarantees to the private sector should attract appropriate fees, and should be within an established framework.
“Given the current dwindling resources accruing to all tiers of Government, resulting from the various shocks in the economy, State Governments need to be encouraged to implement effective fiscal reforms aimed at improving their internally generated revenues, so as to curtail the over-dependence on federal allocations and Federal Government bail-out.
“The DMO should be encouraged to sustain its on-going capacity building initiatives for the sub-nationals, so as to upscale their technical competence and skills in debt management, and bring them to the level where the staff of the Debt Management. Departments would be able to conduct DSAs and Medium-Term Debt Strategy,(MTDS) for their States. This will further help the officials to effectively advise their respective State Governments on issues relating to public debt management.”

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