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Petrol subsidy majorly behind Nigeria’s surging debt

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Huge petrol subsidy payment is majorly the reason Nigeria continues to stockpile recent debts, according to the Director General of the Debt Management Office, DMO, Patience Oniha.

Nigeria’s total public debt stock from N41.60tn as of March 2022 to N42.84tn as of June of the same year, showing an increase of N1.24tn in three months.

In a presentation at the Executive Course on Budgeting and Fiscal Transparency at the Army Resource Centre in Abuja, on Tuesday , she attributed the current debt stock to expanding budget deficit, as the borrowing plan for 2022 was increased by N1 trillion to enable government to pay the additional cost of petrol subsidy.

Oniha however, insisted that the debt level is still within acceptable limits and sustainable.

Speaking on the topic, Debt Sustainability Challenges and Strategic Revenue Mobilisation Initiative, the DG said that amid low revenues, the federal government has resorted to borrowing to fund the budget.

She assured that the DMO is deploying World Bank and International Monetary Fund tools to ensure the sustainability of Nigeria’s public debt.

“These tools include an annual Debt Sustainability Analysis (DSA) and a Medium Term Debt Management Strategy (MTDS) every four years,” she stated.

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In addition, she said, “Maturities in the Public Debt Portfolio are well spread to avoid bunching of maturities and to ease repayments of maturing obligations. The Domestic Debt portfolio has securities with tenors ranging from 91 days to 30 years, while the External Debt Portfolio has securities ranging between 5 years to 30 years.”

She explained that despite criticisms of the government’s borrowing, Nigeria’s debt to GDP ratio remains among the lowest globally.

She pointed out that while Nigeria’s debt to GDP ratio was 23.06 percent, countries such as Angola (136.54%), South Africa (69.45%), Ghana (78.92%), United States (133.92%) and United Kingdom (104.47%) have higher ratios.

She however stressed that rising levels of public debts is a global concern, as many governments have now resorted to borrowing to meet with economic and social challenges caused by the Covid-19 pandemic and the Russia-Ukraine war.

“Governments across the world borrow. Globally, debt levels are growing, but it is not a new trend. Debt levels were already rising prior to Covid-19 crisis when compared to 2014. Globally, sovereign debt grew from 49 percent of GDP in 2014 to 57.9 percent in 2019 and in sub-Saharan Africa, from 35 percent of GDP in 2014 to 55 percent in 2019. In Nigeria, this ratio rose from 13 percent in 2014 to 19 percent in 2019”, she stated.

The DG also emphasized that the loans will enable the government to finance critical infrastructure with multiplier benefits (job creation, movement of persons and goods) and overall GDP growth.

She noted that the country was facing a revenue crisis, adding that it has become very important for the government at all levels to pay more attention on how to increase revenue generation as a means of reducing borrowing.

The DMO boss urged citizens and corporate bodies to pay their taxes in order to make funds available for the government to finance the various much-needed infrastructural facilities, across the country.

She added that the issuance of federal government securities had several benefits for both the citizens and corporate organisations, including safe investment opportunities with regular returns and being the vehicle for mobilizing large pools of funds from domestic and international sources for investments in capital projects.

“The securities also aid in the development of the domestic financial sector; Liquid assets for banks and other institutions who need to hold such assets; attracting foreign investors into the domestic markets; and providing sovereign yield curves in the domestic and international markets, against which other issuers such as State Governments, private sector entities and multilaterals can issue securities to raise capital were major advantages of the exercise,” she added.

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