Despite Nigeria’s rising debt profile, the Debt Management Office (DMO) says the country does not face a potential risk of falling into “debt distress” due to its $15.9 billion Eurobonds.
The debt management agency in its latest public debt update published last month put the country’s total debt stock as at March 31, 2022 at about N41.6 trillion, or $100.07billion.
The DMO said the debt profile grew by about N2.04 trillion, or $4.29billion, from N39.56 trillion, or $95.78 billion as at the end of the last quarter in 2021 on December 31.
The figure is made up of the total of the Federal Government’s domestic and external debt stocks, along with those of the 36 States of the federation and the Federal Capital Territory, Abuja. including new domestic borrowings by the Federal Government to part finance the deficit in the 2022 Appropriation Act; the $1.25 billion Eurobond issued in March 2022, and disbursements by multilateral and bilateral lenders as well as increases in the debt stock of the State Governments and the FCT.
Despite the fears expressed by concerned Nigerians that the country’s rising debt profile might push the country into distress, the DMO in a statement posted on its website on Wednesday dismissed such fears.
The DMO was reacting to an alarm raised by a member of the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN), Robert Asogwa, who expressed worry over the country’s rising debt, particularly the increasing accumulation of Eurobonds in the external debt component.
“The unexplained government preference of Eurobonds at high interest costs, with the associated exchange rate, risk may likely hurt Nigeria sooner than anticipated,” Asogwa said.
“The escalating fiscal sector deficits with the attendant rising debt ratios are part of the weak links in the domestic economic environment.
“The poor revenue growth in a period of expanding government expenditures has continued to soar the budget deficit levels in the first quarter of 2022, similar to the trend witnessed in 2021,” he added.
But the DMO said Asogwa’s concerns may have been made without consideration for the country’s borrowing needs as captured in the Annual Budgets, Medium Term Expenditure Framework and the Debt Management Strategy.
The agency said successive Debt Management Strategies had always indicated that the Federal Government’s preferred source of borrowing was concessional sources rather than commercial sources like Eurobonds.
The DMO cited one of the objectives of the government’s Debt Management Strategy 2020-2023 as maximising funds available to Nigeria from multilateral and bilateral sources in order to access cheaper and long tenored funds.
It said it was an indication that the authorities took cognisance of the limited funding envelopes available to the country due to its classification as “Lower-Middle-Income country”.
Given the size of new borrowings in the annual budgets over the years, the DMO said it would not have been proper for the Federal Government to raise all the funds from the domestic market.
“That will result to government crowding the private sector and raising borrowing rates. Consequently, some part of the required funding has to be raised externally,” it said.
The DMO said that concessional loans, though relatively cheaper, were limited in amount and were not available for financing infrastructure and other capital projects.
“Thus, Nigeria accesses concessional and semi-concessional loans as may be available, while issuing Eurobonds to part-fiance the annual budgets and the infrastructure projects contained therein, ” it explained.
On the fear of the country slipping into debt-distress, the DMO emphasised the need to generate more revenues, significantly beyond the current levels.