The Debt Management Office (DMO) has clarified that the latest move by the President Muhammadu Buhari administration for a $22.718 billion is consistent with the subsisting Debt Management Strategy, which seeks to replace short-term high interest cost domestic debt with low interest long-term external debt and is one of the measures that is being implemented to moderate the level of debt service.
In a statement issued recently, the DMO noted that the latest request is not a new request, but represents those borrowings which were submitted to the 8th National Assembly but were yet to be approved before the expiration of that Assembly.
“The proposed new Borrowing is consistent with the subsisting Debt Management Strategy which seeks to replace short term high –interest cost domestic debt with low interest long term external debt and is one of the measures that is being implemented to moderate the level of Debt Service.
“The achievements in this regard are evidenced in the declining share of domestic debt in the Total Public Debt from over 83 per cent in December 2015 to about 68 per cent in June 2019.”
The debt management agency said the public debt Stock is actually a cumulative figure of borrowings by successive governments over many years, and is therefore not appropriate to attribute it to any one administration.
It added that requests in the Medium-Term External Borrowing Plan are proposed borrowings from multilateral and bilateral lenders, adding that the proposed loans are concessional, semi-concessional, long-tenored and are for the purpose of financing infrastructure and other developmental social projects all of which have multiplier effects in terms of job creation, business opportunities and overall increase in Nigeria’s Gross Domestic Product (GDP).
According to the DMO, the benefits are long-term and will serve generations of Nigerians.
It added that the achievements in this regard are evidenced in the declining share of domestic debt in the total public debt from over 83 per cent in December 2015 to about 68 per cent in June 2019.
The statement disclosed that Nigeria has a ceiling of 25 per cent on the total public debt stock to GDP) which it has operated within.
The agency stated that ratios for December 31, 2018 and June 30, 2019 were 19.09 per cent and 18.99 per cent respectively.
The DMO said the debt service to revenue ratio (Debt Service/Revenue) has however, been higher than desirable and provides strong justification for the current drive to increase oil and non-oil revenues significantly, pointing out that the Debt Service/Revenue for the years 2017 and 2018 were 57 per cent and 51 per cent respectively.
The debt service figures have grown as a result of the increase in the Debt Stock and relatively high domestic interest rates, it added.
“Still on the issue of debt sustainability, when compared to a number of countries, Nigeria’s Debt/GDP is relatively low but the Debt Service/Revenue is relatively high. The United States of America, United Kingdom and Canada had Debt/ GDP ratios of 105 per cent, 85 per cent and 90 per cent in 2017 which were much higher than that of Nigeria, but because they generate adequate revenues, their Debt Service/Revenue for the same year were 12.5 per cent, 7.5 per cent and 7.5 per cent respectively.
“The case was also similar for Brazil, South Africa, Kenya and Mexico who had higher Debt/GDP than Nigeria (74 per cent, 53 per cent, 57 per cent and 46 per cent, respectively), but had lower Debt Service/Revenue of 32.20 per cent,11.4 per cent,13.2 per cent and 13.6 per cent respectively. This is clear evidence that Nigeria’s revenues are low. This is further demonstrated by Nigeria’s Tax to GDP Ratio of only six per cent in 2018 compared to: Kenya-15.7 per cent, Morroco-21.8 per cent, Cameroon-12.2 per cent and South Africa-27.5 per cent, all for 2017.
These, attest to the fact that Nigeria has a Revenue challenge rather than a Debt Problem.
“It is in the regard that all efforts to increase Revenues through measures such as the Finance Bill and Strategic Revenue Growth Initiative should be given necessary support.
Overall, the justification for the borrowing is that many of the projects in the Plan are for the development of infrastructure in the areas of roads, railways, waterways and power which will help to unleash the potentials of the Nigerian economy,” the DMO explained.
The theme of this year’s dialogue is: “Stemming the Increasing Cost of Oil Theft to Nigeria.”