• Wednesday, May 29, 2024
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Nigeria’s borrowing threshold raised to 56%


The borrowing threshold for Nigeria and that of other low income countries (LICs) within same group as the country has been raised from 40 percent to 56 percent, Abraham Nwankwo, director general, Debt Management Office (DMO), said on Monday.

This new status means that Nigeria and the LICs in this new group can borrow up to 56 percent of the net present value of their Gross Domestic Product (GDP) and still be comfortable. This is against the 40 percent recommended till recently.

But Nwankwo maintained that despite the raise, Nigeria would continue to use 40 percent debt to GDP threshold as its borrowing guide.

“For countries with our rating, the net present value to public debt ratio has been changed to 56 percent. Nigeria advisedly will remain on 40 percent for practical purposes but will continue noting that it belongs to the group of countries who have been allowed to borrow up to 56 percent of the net present value of the GDP. And as you know, Nigeria has always had its own local threshold which is always more conservative than the peer group threshold”, Nwankwo stated.

Nigeria’s total debt to GDP ratio is now slightly below 20 percent, much lower than the 40 percent threshold. As at end March, 2013, the external debt was $6.67 billion while the domestic stood at about N6.493 trillion.

The World Bank and International Monetary Fund (IMF) set the debt sustainability framework (DSF) which is a standardised framework for analysing debt-related vulnerabilities in low-income countries (LICs).

The aim is to help countries monitor their debt burden and take early preventive action, provide guidance to creditors in ensuring their lending decisions are consistent with countries’ development goals, and to improve the bank and fund’s assessments and policy advice.

Nigeria’s new borrowing status is a pointer to its commendable economic performance in recent times, in terms of high growth, expanding fortune and huge potential and a fall out of recent review by the two institutions which elevated the country to a higher level low income class.

As a result of the review, the World Bank is to move Nigeria to a ‘blend’ category of its developmental lending scheme, which removes the country from a very low income status and qualifies it to access credits from both the International Development Fund (IDA) and IBRD lending windows of the World Bank.

Speaking at the opening session on a workshop on Debt Sustainability Analysis in Abuja, Abraham Nwankwo, director general, DMO, assured that government is conscious of its debt levels and will not over borrow.

He said Nigeria will continue to be conservative and maintain its current borrowing standards being mindful of its peculiarities.