New debt strategy prioritises domestic borrowing ― DMO
• Debt to GDP target raised from 25 per cent to 40 per cent
Federal Executive Council (FEC), on Wednesday, approved the medium-term debt strategy, which reversed concentration on foreign loans in favour of long term domestic borrowings from 2020 to 2023.
Another highlight of the new strategy is the increase in the target debt to GDP ratio of 40 per cent from the 25 per cent stipulated in the Fiscal Sustainability Act but noted that the ratio was still well below the World Bank/IMF’s recommended threshold of 55 per cent for countries in Nigeria’s peer group.
“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 for External Borrowing, concessional funding from multilateral and bilateral sources will be prioritised,” a summary from Debt Management Office (DMO) explained.
The agency noted the medium-term debt strategy (MTDS) 2020-2023 was prepared by the DMO, in collaboration with 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.
Average tenor of debts within the period would be 10 years and above in order “to sustain the issuance of longer-tenured instruments to effectively manage to refinance risks.
Efforts would be made to borrow 70 of debts domestically and external debt of 30 per cent to further strengthen the domestic debt market and optimise access to both Concessional and Commercial sources of funding.
“The new Strategy 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.”
The document explained that preparation of the MTDS involved consideration of alternative funding strategies available to government, as it seeks to meet its financing needs, taking into consideration the cost of borrowing and the associated risks, while ensuring debt sustainability in the medium to long-term.