Level of new borrowings declined since Nigeria exited recession – DMO

By Chimezie Godfrey

The Debt Management Office of Nigeria (DMO) has said that the level of new borrowings in appropriation acts declined consistently  since Nigeria exited the recession in the year 2017.

The Director General, Patience Oniha at a press briefing in Abuja on Friday also reiterated the fact that the increase in the new borrowings in the appropriations acts between 2015 and 2017 was due to the need to stimulate growth and create jobs in the economy in the Economic Recovery Growth Plan(ERGP).

The DMO at a series of interactive sessions presented a review of activities and its plans for raising capital from domestic and external sources in the year 2020.

The sessions involved banks and institutional investors in the Federal Government of Nigeria (FGN) securities amongst which were Pension Funds Administrators(PFA), Insurance companies, Fund and Asset Managers.

According to the DG,”The presentation by the DMO at the interactive sessions showed that the Total Public Debt, comprising the debts of the FGN, 36 states and the Federal Capital Territory(FCT) as at September 2019 stood at 26.215trillion naira.

“The comparative figure for June 2019 was 25.701trillion naira which implies that in the quarter July to September 2019 the Total Public Debt grew by 2.0%.

“The DMO also stated that the total public debt as at September 2019 includes promissory notes in the amount of 821.651billion which had been issued to settle the FGN’s arrears to oil marketing companies and State Governments under the Promissory Programme approved by the Federal Executive Council and the National Assembly.”

Oniha informed the stakeholders at the interactive sessions that whereas the 2019 Appropriation Act provided for a total new borrowing of 1,605.63billion naira split equally between Domestic and External, only the domestic component of 802.82billion was raised due to the late passage of the 2020 budget would commence on January 1, 2020.

She listed as achievements for 2019, the issuance of a 30-year FGN Bond for the first time.

According to her, the introduction of a 30-year FGN Bond was  to meet the investment needs of long-term investors such as insurance companies and support the development of the domestic financial markets in areas such as mortgages.

She added that from the FGN perspective the 30-year Bond also contributed to reducing the refinancing risks of the Public Debt Stock.

She further said that the product has enjoyed a strong demand as 284.391 billion and 570 billion had been issued by the end of September 2019 and December 2019 respectively. 

“The ratio of Domestic Debt to External Debt at 69:31 was about the same as at June 2019 of 68:32 compared to the target of 60:40 in the Medium-Term Debt Strategy.

“The ratio of Long Term to Short Term Debt in the domestic debt was 80:20 which shows that the target of 75:25 had been outperformed.

“Similarly,total debt as a percentage of GDP was 18.47% as at September 2019 which was within the limit of 25% and fares better in comparison with the debt/GDP ratios of countries such as the United States of America, United Kingdom and Canada with ratios of 105%, 85%, and 90% respectively for the period.

“However, because they generate adequate revenues, their debt service/revenue ratios for the same period were much lower at 12.5%, 7.5% and 7.5% respectively when compared to Nigeria’s 51% in 2017,” she said.

The DG pointed out that low revenue base of Nigeria relative to its GDP is clearly reflected in the high debt service to revenue ratio, adding that this clearly brings to the fore, the need for revenues to grow.

She said that the efforts towards increasing and diversifying revenue such as the passage of the Finance Act and Strategic Revenue Growth Initiative of the Federal Ministry of Finance, Budget and National Planning should thus be supported.

Speaking further, she said the DMO has also unveiled its plans for the year 2020, based on the New Borrowings in the 2020 Appropriation Acts, which comprises of 850billion and 744.99billion for External and Domestic Borrowings respectively.

”The New Domestic Borrowings will be raised through FGN Bonds, Sukuk, FGN savings Bonds and possibly Green Bonds.

“For External Borrowings the strategy is to first seek out concessionary and semi concessionary loans due to the lower interest rate and longer tenors. Any short fall thereafter may be raised from commercial sources,” she said.