FEC approves total public debt increase from 25% to 40%
The Debt management office has announced that the Federal Executive Council FEC has approved a new Medium-Term Debt Management Strategy MTDS for Nigeria for the period 2020-2023.
The Medium-Term Debt Management Strategy (MTDS) is a policy document that provides a guide to the borrowing activities of a Government in the medium-term, usually four (4) years.
According to the DMO, the FG has increased the total public debt from 25 percent to 40 percent in order to accommodate new borrowings to fund Budget Deficits and other obligations of the Government. The new borrowing strategy will come from promissory notes to be issued to settle government arrears and the ways and means to advance at the Central Bank of Nigeria.
The DMO stated that this ratio is still well below the WB/IMF’s recommended threshold of 55% for countries in Nigeria’s peer group. The DMO added that from 2020 to 2023 when this new borrowing strategy will last, “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 External Borrowing will be prioritized concessional funding from multilateral and bilateral sources”.
Portfolio Composition from 2020 to 2023 will be in the mix or ratio of, Domestic 70 percent: External 30 percent. This the DMO said is “to further strengthen the domestic debt market and optimize access to both Concessional and Commercial sources of funding.”
With regards to refinancing new debts, the DMO said the government will be doing an average Tenor of Debt Portfolio of 10 years minimum while long-Term to Short-Term Domestic Debt Mix will be in the ratio of 75%:25%. This the DMO said “is to sustain the issuance of longer-tenored instruments with tenors of 10 years and above, in order to effectively manage refinancing risks”.
The implementation of the Medium-Term Debt Management Strategies over the years, “has helped in managing the structure of the growing public debt, and ensured debt sustainability, as well as effectiveness in public debt management”.
The DMO assured that the Strategy will be implemented to support economic development while ensuring that the Public Debt is sustainable”.
The Medium-Term Debt Management Strategy (MTDS) is a policy document that provides a guide to the borrowing activities of the government in the medium-term, usually four (4) years.
It is recognized as one of the best practices in public debt management and is recommended by the World Bank (WB) and International Monetary Fund (IMF) to ensure that public debt management is driven by a well-articulated Strategy that is structured to meet a country’s broader macroeconomic and public debt management objectives.
The MTDS, 2020-2023 was prepared by the Debt Management Office (DMO), in collaboration with the Federal Ministry of Finance, Budget and National Planning; Central Bank of Nigeria; Budget Office of the Federation; National Bureau of Statistics and the Office of the Accountant-General of the Federation.
According to the DMO, “Nigeria has had two (2) Medium Term Debt Management Strategies (2012-2015 and 2016-2019), prior to the current Strategy”.
The new Strategy it said “had to be re-worked to reflect the global and local economic impact of the COVID-19 Pandemic and incorporates data from the revised 2020 Appropriation Act and the Medium-Term Expenditure Framework 2021-2023. Thus, the new MTDS adequately reflects the current economic realities and the projected trends”.