A new medium-term debt management strategy that would give priority to the Federal Government’s borrowings from domestic sources was approved on Wednesday by the Executive Council of the Federation (FEC).
Under the revised strategy announced by the Debt Management Office (DMO) in a statement at the end of the FEC meeting in Abuja, government’s borrowings would be in the ratio of 70:30 percent between domestic and external sources.
The debt management agency said the new strategy was based on the country’s current public debt stock of N32.2trillion as indicated in the 2021 Appropriation Act, the medium-term expenditure framework (MTEF) and future global economic trends.
“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 prioritized,” the DMO said.
The new policy strategy, the agency said, would be to guide the government borrowing activities in the medium-term until 2023.
Prepared in collaboration with Federal Ministry of Finance, Budget and National Planning, the Central Bank of Nigeria (CBN), the Budget Office of the Federation (BoF), National Bureau of Statistics (NBS) and the Office of the Accountant-General of the Federation (OAGF), the new strategy is structured to meet the country’s broader macroeconomic and public debt management objectives.
The government’s economic objectives as indicated in the MTEF included improving and sustaining economic growth and ensuring inclusiveness; supporting employment creation and preserving jobs, and ensuring macroeconomic stability.
The DMO said the new debt strategy was a revision of two similar documents previously approved between 2012 and 2015 as well as 2016 and 2019.
The new policy, the agency said, was re-worked to reflect the global and local economic realities of the impact of the COVID-19 pandemic by incorporating data from the revised 2020 Appropriation Act and the MTEF 2021-2023.
The new strategy, the DMO noted, adequately reflects the current economic realities, particularly the alternative funding strategies available to the government, as it seeks to meet its financing needs, taking into consideration the cost of borrowing and the associated risks, while ensuring debt sustainability in the medium to long-term.
A review of the 2016-2019 strategy showed that the in terms of the fiscal sustainability, which is total public debt as a percentage of the country’s gross domestic product (GDP), target was 25 percent maximum out of which 19 percent was actually achieved at the end of the period.
With the borrowing portfolio composed of domestic and external sources in the ratio 60:40 percent, the management of the debt refinancing risks showed significant improvement to a ratio of 67:33 percent as at December 31, 2019.
The financing risks target of a minimum of 10 years was exceeded, to 10.5 percent as at December 31, 2019.
Also, the long and short-term debts strategy target of 75:25 percent in favour of domestic sources was exceeded to 79:21 percent as at December31, 2019.
Under the current strategy, fiscal debt sustainability rate was put at maximum of 40 percent, up from 25 percent previously.
The DMO said the reason for the increment was to accommodate new borrowings to fund budget deficits and other government obligations; promissory notes to be issued to settle government arrears; and, the ways and means advance at the Central Bank of Nigeria.
Debt portfolio composition between domestic and external portfolio was targeted at 70:30 percent to further strengthen the domestic debt market and optimize access to both concessional and commercial sources of funding.
To sustain the issuance of longer-tenored debt instruments with tenors of 10 years and above, to effectively manage refinancing risks.
In the 2021 Budget, the Minister of Finance, Budget and National Planning, Zainab Ahmed, said while presenting the detailed analysis of the approved appropriation on January 12 that funding of government’s debt would be sourced equally N2.34 trillion from domestic and N2.34 trillion from external sources.
The other source of funding for about N709.69 billion of the debts, the minister said, would be from multi-lateral and bi-lateral loan drawdowns as well as N205.15 billion from privatization proceeds.
Multilateral debts, which constitute about 52.34 percent of the total external debt stock, consists those from International Monetary Fund (IMF) and the World Bank Group.
These include debts from the International Development Association (IDA),
Int’l Bank for Reconstruction and Development (IBRD), African Development Bank (AfDB) Group, consisting African Development Bank, Africa Growing Together Fund (AGTF), African Development Fund (ADF), Arab Bank for Economic Development in Africa (ABEDA), European Development Fund (EDF), Islamic Development Bank (IDB) and Int’l Fund for Agricultural Development (IFAD).
The bilateral debts, which constitute about 47.66 percent, include those from
China (Exim Bank of China), France (Agence Francaise Development), Japan (Japan International Cooperation Agency), India (Exim Bank of India) and Germany (Kreditanstalt Fur Wiederaufbua).