Nigeria’s federal government has set new borrowing limit that will allow it to expand its current debt portfolio from N33.11 trillion to N61 trillion.
The new borrowing limit contained in a document, Medium Term Debt Strategy, shows that Nigeria has raised its borrowing limit from 25 per cent of the Gross Domestic Product to 40 per cent of the GDP.
This revelation came even as the Senate gave new approvals to the Federal Government to borrow $8.33bn and €490m from external sources.
As of December 31, 2020, the National Bureau of Statistics put the country’s GDP at N152.32tn. Thus, forty per cent of the current GDP is N60.93tn.
Twenty-five per cent of the current GDP is N38.08tn, an amount which the nation may have surpassed in debt given that there are loans which the nation has already secured but are not included in the debt stock because they have not been drawn down.
This means that Nigeria can borrow as much as N60.93tn. Thus, with Nigeria’s current debt currently at N33.11tn, the new borrowing limit has given the country the leeway to expand its debt portfolio by up to N27.82tn.
Director-General of the Debt Management Office, Patience Oniha, confirmed the new borrowing limit in a telephone interview with PUNCH on Thursday.
Oniha said, “The new debt limit is 40 per cent. It was approved as part of the MTDS 2020 – 2023. The document and highlights are on our website.”
The DMO boss also dismissed insinuations that the new approval given by the Senate may have taken the country beyond the set borrowing limit.
She said, “The latest loan approval is within 40 per cent. Secondly, note that these loans will be disbursed over time and only what is disbursed is included in the debt stock.”
The debt strategy document said, “The debt limit was increased to accommodate new borrowings to fund budget, issuance of more promissory notes and the proposal to transfer some State Owned Enterprises’ debts, including AMCON to the FGN’s Balance Sheet in line with the IMF’s guidelines, and proposed inclusion of ways and means.
“This limit is provided in Section 12(1) of the Fiscal Responsibility Act (FRA), 2007, and efforts are to be made to ensure compliance, except if in the opinion of the President, there is good reason to exceed the threshold, as further provided in Section 12(2) of the Act.”
The primary objective of Nigeria’s MTDS, 2020-2023 is to guide the borrowing activities of the FGN in the medium-term, the document said.
The framework compares alternative funding strategies available to the government as it pursues the desired structure of debt portfolio that reflects the selected strategy considering the costs and risk trade-offs in the medium-term.
The document said, “The main thrust of this new strategy is to moderate the level of debt related risks, reduce the cost of debt servicing, maximise leveraging on funding from multilateral and bilateral sources, subject to availability, whilst ensuring debt sustainability, amongst other objectives.”
According to the document, the DMO is not in control of the growth in GDP and FGN revenue, but its assessment of the performance of Nigeria’s total public debt to GDP shows that the debt portfolio remains within a sustainable limit.
It said, “The ratio of Total Public Debt Portfolio to GDP was 19.00 per cent as at December 31, 2019 compared to 13.02 per cent in 2015, remaining within the Country-Specific Debt Limit of 25 per cent.
“Although the ratio has increased steadily due to new borrowings and slower growth of the GDP, this ratio for each of the years – 2016 to 2019, was well below the World Bank/IMF’s recommended threshold of 55 per cent for countries in Nigeria’s peer group and ECOWAS convergence threshold of 70 per cent, as well as within the Country’s Specific Debt Limit of 25 per cent.”
According to the National Debt Management Framework 2018 -2022 document on the DMO website, Nigeria is a Lower-Middle-Income country.
According to the document, Debt Sustainability Analysis carried out by the DMO uses the joint World Bank/IMF Debt Sustainability Framework for Low Income Countries.
According to this sustainability framework, medium economies on the composite indicator must have a liquidity ratio for external debt service to revenue of 15 per cent, PUNCH reported.