Nigeria targets 40% debt to GDP ratio by 2023

Nigeria is targeting a debt to GDP ratio of 40 percent by 2023 from the current level of 25 percent in a new Medium Term Debt Management Strategy approved by the Federal Executive Council on Wednesday, Feb.10.

This comes as Africa’s biggest economy aims to accommodate new borrowings to fund budget deficits and other obligations of the government; including a plan to settle the huge pile-up of arrears; and, the Ways and Means Advance at the Central Bank of Nigeria through the issuance of promissory notes.

According to the Debt Management Office (DMO), which wrote in a memo seen by BusinessDay, the new target of 40 percent debt-to-GDP ratio is still well below the World Bank and International Monetary Fund (IMF) recommended threshold of 55 percent for countries in Nigeria’s peer group.

To further strengthen the domestic debt market and optimize access to both concessional and commercial sources of funding, the new debt management strategy also stipulated an increase of Nigeria’s debt mix from the 60 percent domestic and 40 percent external to a new maximum target of 70 percent from domestic sources, and a minimum 30 percent from external borrowings.

It also stipulated a minimum of 75 percent and maximum of 25 percent for long-term and short-term debt respectively; and a minimum 10 years the average tenor of the debt portfolio.

This it said would help in sustaining the issuance of longer-dated instruments with tenors of 10 years and above, to effectively manage

“Borrowing 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 prioritised,” the memo reads.

According to the DMO, the new plan which was prepared 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), was 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.

With the current strategy, it means the country would have had three different debt management frameworks, the memo shows.

The first which started in 2012 and ended in 2015, while the second was between 2016 and 2019

Given appraisal of past debt management framework, the memo showed an improvement in Nigeria fiscal sustainability, with debt to GDP coming to 19 percent as at end of 2019, below the 25 percent target set in the plan.

The government achieved a domestic/external debt mix in the ratio of 67:33, an improvement from the ration of 84:16 in 2015, but was outside the set target of 60 percent local debt and 40 percent external debt.

Actual average tenor of debt at minimum 10.5 years, was also outside set target of 10 years, while a minimum 79 percent and a maximum of 21 percent was achieved for long-term and short-term debt in 2019, outside the target of 75 percent and 25 percent