The the Debt Management Office (DMO) has clarified that Nigerian government’s continued borrowing has been as a result of low revenues.
The DMO was reacting to a statement allegedly made by a member of the Monetary Policy Committee of the Central Bank of Nigeria, which according to the debt office, may have been made without due consideration of the Government’s borrowing needs as captured in the Annual Budgets, Medium-Term Expenditure Framework, as well as, the Debt Management Strategy.
According to the DMO, the borrowing needs are derived from the Annual Budgets while the borrowing mix is based on the subsisting Debt Management Strategy.
It further explained that Successive Debt Management Strategies have often indicated that the federal government’s preferred source of external borrowing is concessional sources rather than commercial sources such as Eurobonds.
It would be recalled that one of the objectives of the Debt Management Strategy 2020 – 2023 is to maximise funds available to Nigeria from Multilateral and Bilateral sources in order to access cheaper and long tenored funds, whilst taking cognizance of the limited funding envelopes available to Nigeria, due to Nigeria’s classification as Lower-Middle-Income country.
In line with the strategy, the DMO has been able to remix the borrowing structure to 38.66% for external bore and domestic, 61.34% as at late last year.
“Given the size of new borrowings in the Annual Budgets over the years, it would not have been proper for the FGN to raise all the funds from the Domestic Market as this would result in the Government crowding out the private sector and raising borrowing rates.
Consequently, some part of the required funding has to be raised externally.
“While loans from concessional sources such as the International Development Association- an arm of the World Bank – are relatively cheaper as stated above, they are limited in amount. In addition, they are 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 finance the Annual Budgets and the infrastructure projects contained therein,” it explained.
On the issue of Eurobonds likely lead to debt distress, the DMO reiterated the need to generate more revenues significantly beyond their current levels.
Quoting data from the World Bank, the DMO further explained that Nigeria has a much lower Revenue to GDP Ratio compared to a number of advanced and developing countries which have higher Public Debt to GDP Ratios than it.
The World Bank’s Economic Outlook for 2020 showed that in 2020, Nigeria’s Revenue to GDP Ratio was 6.3% placing it at number 194 out of 196 countries.
The DMO explained that while the Government continues ongoing efforts to diversify and grow revenues, the public should take into cognizance other benefits of Eurobonds which include increase in the level of external reserves and opening up opportunities for the private sector to access the international capital market since January 2011 when the debut Sovereign Eurobond was issued by the DMO on behalf of the FGN.
As at today, many Nigerian Banks including United Bank for Africa, Access, Zenith and Fidelity have all issued Eurobonds to raise capital, leaning on access and opportunity provided by the 2011 debut, it further explained.