Low incomes boost government’s appetite for borrowing, says DMO
The Debt Management Office (DMO) clarified that the Nigerian government’s continued borrowing was due to 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 could have been made without due regard to the government’s borrowing needs such that they appear in the annual budgets, Medium Term Expenditure Framework, as well as the debt management strategy.
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According to the DMO, borrowing requirements are derived from annual budgets while the composition of borrowings is based on the debt management strategy in effect.
He 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 should be recalled that one of the objectives of the Debt Management Strategy 2020 – 2023 is to maximize the funds available to Nigeria from multilateral and bilateral sources in order to access cheaper and long-term funds. , while taking into account the limited funding envelopes available for Nigeria. , due to Nigeria’s classification as a lower-middle-income country.
In line with the strategy, the DMO was able to remix the borrowing structure to 38.66% for external and domestic boring, 61.34% at the end of last year.
“Given the size of new borrowing in annual budgets over the years, it would not have been appropriate for the FGN to raise all funds from the domestic market, as this would result in the government crowding out the private sector and increasing borrowing rates.
Therefore, part of the required financing must be obtained from outside.
“Although loans from concessional sources such as the International Development Association – an arm of the World Bank – are relatively cheaper, as noted above, they are limited in amount. Moreover, they are not available for financing infrastructure and other investment projects.
“Thus, Nigeria is accessing available concessional and semi-concessional loans, while issuing Eurobonds to partly fund annual budgets and the infrastructure projects within them,” he explained.
On the issue of Eurobonds that could lead to over-indebtedness, the DMO reiterated the need to generate more revenue well beyond their current levels.
Citing data from the World Bank, the DMO further explained that Nigeria has a much lower revenue-to-GDP ratio than a number of advanced and developing countries that have higher public debt-to-GDP ratios. .
The World Bank’s Economic Outlook for 2020 showed that in 2020, Nigeria’s revenue-to-GDP ratio was 6.3%, ranking it 194th out of 196 countries.
The DMO explained that if the government continues its ongoing efforts to diversify and increase revenues, the public should consider the other benefits of Eurobonds, including increasing the level of external reserves and opening up opportunities for the private sector to access the international capital market since January 2011 when the first sovereign Eurobond was issued by the DMO on behalf of the FGN.
To date, many Nigerian banks, including United Bank for Africa, Access, Zenith and Fidelity, have all issued Eurobonds to raise capital, building on the access and opportunities offered by early 2011 , he explained.