Govt cannot exceed N1.3tr loan in 2014, says DMO

IF the Federal Government is serious about sustaining the nation’s economic growth, it must not allow the country’s domestic and external borrowing in 2014 to exceed N1.3 trillion ($7.834 billion), the Debt Management Office (DMO) has warned.
The warning, contained in DMO’s recently released 2013 Annual National Debt Sustainability Analysis (DSA) report, came at a time that economic experts were calling on the Federal Government to diversify the economy without further delay.
According to the report, available borrowing space is expected to be 2.6 per cent of the nominal Gross Domestic Product (GDP) estimated at N48,057,35 trillion ($301.3 billion). Note that Nigeria’s total public debt portfolio stood at $35.09 billion at the end of 2010, of which external debt was $4.58 billion (13 per cent of total) while domestic debt constituted the balance of 87 per cent.
However, by end of September 2011, the debt stock of $40.03 billion was 14.0 per cent and 86.0 per cent for external and domestic holdings respectively. The report noted that N1,249,52 ($7.834 billion) maximum additional borrowing in 2014 could be raised in the ratio of 60 per cent external and 40 per cent domestic.
This will be in line with the Medium-Term Debt Management strategy (MTDs) for 2012 to 2015, which recommends a gradual substitution of the relatively more expensive domestic borrowing with cheaper external financing in order to reduce cost and achieve optimal portfolio mix.
“In this regard, recommended borrowing from domestic and external sources is put at $3.137 million (about N500 billion) and $4.697 million (about N748.64 billion),” the report noted.
Accordingly, the recommended borrowing limit is about N264 billion ($1.65 billion) lower than the projected borrowing in the Medium-Term Expenditure Framework (MTEF), indicating government’s commitment to fiscal prudence and discipline.
The report noted that efforts are aimed at ensuring that all new project-tied borrowings are sustained and must have significant multiplier effects that would provide long-term benefits for the country.
It added: “As a way of reducing public sector expenditure and borrowing, as well as the rate of debt accumulation, government should sustain the policy measures aimed at incentivising the private sector to lead investments in the critical sectors of the economy and development of infrastructures.”
It further held that though Nigeria now has increased borrowing space based on the latest international benchmarks, it should still maintain the conservative stance of benchmarking the Net Present Value (NPV) of total public debt/GDP – federal and states at 40 per cent, as against the latest threshold of 56 per cent for countries in Nigeria’s peer group.
And as a long-term solution to the adverse effects of possible revenue shocks, it advised, current efforts at increasing collectible revenue from exiting sources and diversifying the revenue base through the acceleration of growth of the non-oil sector in the medium to long-term should be intensified.