…Says Nigeria has revenue not debt problem
…Acknowledges bad debt/ revenue ratio
By Peter Egwuatu & Elizabeth Adegbesan
The Debt Management Office, DMO, has said that the planned borrowing of $22.7 billion is aimed at reducing total cost of Federal Government’s debt in the long-run.
Making this claim in a statement in its website yesterday, the DMO explained: “The proposed new borrowing is consistent with the subsisting Debt Management Strategy which seeks to replace short term high -interest cost domestic debt with low interest long term external debt and is one of the measures that is being implemented to moderate the level of debt service.”
The controversial borrowing has drawn negative reactions across the economy watchers who expressed discomfort over the nation’s rising debt burden and its sustainability measured in terms of Debt Servicing-to-Revenue Ratio, DS/RR seen above 70 percent.
Nigeria’s public debt stock as at first half 2019 was N25.7 trillion, up by 112.4 percent from N12.1 trillion in the corresponding period of 2015, and with the new borrowing at the backdrop of a sluggish revenue growth the debt/ revenue ratio is expected to cross 70 percent mark to become one of the worst debt ratios in the world.
However, in defence of the borrowing DMO explained that the public debt is a cumulative figure of borrowings by successive governments over many years, saying that it is not appropriate to attribute the public debt stock to any one administration.
DMO stated: “The proposed loans are concessional, semi-concessional, long-tenured and are for the purpose of financing infrastructure and other developmental social projects all of which have multiplier effects in terms of job creation, business opportunities and overall increase in Nigeria’s Gross Domestic Product. Also, the benefits are long term and will serve generations of Nigerians.”
In apparent acknowledgment of the worsening debt servicing ratio, DMO also noted that the challenge of Nigeria is not that of debt but revenue saying that the country’s debt profile is low but the amount used to service the debt is high.
In this connection, however, it stated: “(Debt service/revenue) has however, been higher than desirable and provides strong justification for the current drive to increase Oil and Non-Oil Revenues significantly.
“The debt service/revenue for the years 2017 and 2018 were 57 percent and 51 percent respectively. The debt service figures have grown as a result of the increase in the debt stock and relatively high domestic interest rates.
“Overall, the justification for the borrowing is that many of the projects in the Plan are for the development of infrastructure in the areas of roads, railways, waterways and power which will help to unleash the potentials of the Nigerian economy.”