FG Approves New Debt Management Strategy for Nigeria

…Raises Debt To GDP Ratio From To 40% To Accommodate New Borrowing

The Federal Executive Council on Wednesday approved a new Medium-Term Debt Management Strategy for Nigeria, for the period 2020-2023.

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

It is recognized as one of the best practices in public debt management and is recommended by the World Bank and International Monetary Fund 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 has been prepared by the Debt Management Office, in collaboration with relevant stakeholders (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).

This ratio, according to the Debt Management Office is still well below the WB/IMF’s recommended threshold of 55 per cent for countries in Nigeria’s peer group.

Nigeria has had two Medium Term Debt Management Strategies (2012-2015 and 2016-2019), prior to the current Strategy. The new Strategy 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 preparation of the MTDS usually involves the consideration of alternative funding strategies available to government, as it seeks to meet its financing needs, taking into consideration the cost of borrowing and the associated risks, while ensuring debt sustainability in the medium to long-term.

Based on the new MTDS that was approved, the Federal Government increased Total Public Debt as percentage of Gross Domestic Product from 25 per cent to 40 per cent in order to accommodate new borrowings to fund budget deficits and other obligations of government; issue Promissory Notes to settle government Arrears; and Ways and Means Advance at the Central Bank of Nigeria.

According to the current Public Debt Stock, government’s borrowing needs in the medium-term as stated in the 2021 Appropriation Act, Medium Term Expenditure Framework, 2021- 2023), as well as future global trends, Nigeria’s 2020-2023 will be from domestic and external sources but a larger proportion of new borrowing will be from domestic sources using long-term instruments while for External Borrowing, concessional funding from multilateral and bilateral sources will be prioritized.

To further strengthen the domestic debt market and optimize access to both Concessional and Commercial sources of funding, the Federal Government also increase the portfolio composition between domestic and external debt stock at a ratio of 70:30.

This implies that 70 per cent of government borrowing would be sourced from the domestic capital market while the balance of 30 per cent would come from external sources.

Before this approval, the mix between the initial target was that 60 per cent of borrowing would be raised from the domestic market while the balance of 40 per cent was to come from external debt sources.

In terms of the Average Tenor of Debt Portfolio, the government gave approval for a minimum repayment period of 10 years and a maximum period of 25 years for the 2020 to 2023 fiscal periods.

The DMO stated that 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.

With the approval of the Federal Executive Council of the MTDS, 2020-2023, the Strategy will be implemented to support economic development while ensuring that the Public Debt is sustainable.