Nigeria needs to ensure that it develops other sources of revenue asides oil as the country may run into a debt distress if there is prolonged shock on its oil revenue, the Debt Management Office (DMO) has warned.
The DMO, in its annual report, said analysis of the standard stress test of the external and domestic debt of the federal government showed that the present value of the debt to GDP ratio of the country rose at an average of 24.2 per cent annually during the period of 2017-2036.
“The stress tests or combined shocks, when applied to the revenue-based indicators showed a substantial deterioration in ratios, indicating that any prolonged shock on revenue could lead to debt distress in the medium to long-term, if other sources of revenue are not developed to enhance the revenue”, the report stated.
Nigeria’s total debt presently stands at N19.159 trillion as at March 31, 2017 and the Minister of Finance yesterday also stated that the country can no longer borrow.
The DMO report showed that the weighted average interest rate of domestic debt was relatively high at 11.11 percent per annum, as a result of the tight monetary policy stance of the Central Ban of Nigeria (CBN), even As the Monetary Policy Rate (MPR) was increased to 14 per cent since July, 2016, impacting the cost of government’s domestic borrowing.
However, the weighted average interest rate of FGN’s total debt portfolio was 9.19 percent as at end December 2016, compared to 10.77 per cent in 2015, representing a decrease of 1.58 percentage points.
The dominance of concessional external debt in the external total debt portfolio at about 83 per cent as at December, 2016, with average interest rates of about 1.25 per cent per annum and average tenor of about 40 years helped to reduce the average interest rate of external debt and the overall cost of debt in general.
Meanwhile, without violating domestic and foreign borrowing, the Debt Management Office (DMO) has pegged federal government borrowing threshold for this year at $22.07 billion.
In its 2016 annual report, DMO explained that federal government borrowing limit in 2017 was guided by the government’s conservative debt management strategy of using the Country-Specific threshold of 19.39 per cent for Present Value (PV) of total Public Debt-to-Gross Domestic Product (GDP) ratio in the medium-term, as against the country’s international peer group threshold of 56 per cent to measure its debt sustainability.
According to DMO, Net Present Value (NPV) of Total Public Debt-to-GDP ratio for 2016 for federal government was projectedat 13.5 per cent.
The report noted: “Given the Country-Specific ratio of 19.39 per cent for NPV of Total Public Debt-to-GDP ratio (up to 2017), the borrowing space was 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 Federal government in 2017 without violating the country-specific threshold would be $22.08 billion (i.e. 5.89 per cent of $374.95 billion).”
DMO stated that its 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 and external debts, respectively.
It continued: “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.
