DMO urges caution on borrowings over looming debt limit

The Debt Management Office (DMO) has cautioned the Federal Government against brokering new debt deals, given the approaching debt service threshold.

The country’s sustainable debt threshold, arrived at with self-developed country-specific model, showed that as at December 2014, debt service-to-revenue ratio had hit 25.2, against the maximum of 28.

The Director-General of DMO, Dr. Abraham Nwankwo, who gave the advise at a one-day enlightenment workshop, in Lagos, yesterday, noted that the agency developed its own country-specific solvency and liquidity ratios for public debt.

According to him, although, the ratios from the general thresholds indicate that the country’s debt remains sustainable from the country-specific solvency and liquidity thresholds, it is critical to note that the gaps are closing in on the country.

It however, advised that the country should rather deepen strategies and efforts in generating more revenues from the existing sources, as well as opening new sources.

He said DMO noted that it would be illusory to follow the global debt threshold of 56 per cent for countries ranked alongside Nigeria, when its actual revenue is equal to the growth in the Gross Domestic Product (GDP).

Meanwhile, Nwankwo said that in line with sound public debt management practice, DMO conducted yearly national Debt Sustainability Analysis (DSA) in conjunction with relevant stakeholders in 2014.

He said the exercise was aimed at updating records, setting new borrowing limits for government, advising it on funding options and providing inputs into the Medium Term Expenditure Framework.

The result, he said, showed that the country has continued to remain at a low risk of debt distress, with debt-to-GDP ratio at 12.65 per cent, which compared most favourably to the global threshold of 56 per cent, for countries in Nigeria’s peer group.

He noted that beside Nigeria, all the crude oil and commodity-based Sub-Saharan economies were hit hard, as their respective growths trended lower to about 4.8 per cent from 5.2 per cent in the previous year.

“The main risks to the region were lower oil and commodity prices, Ebola epidemic and heightened security challenges arising from insurgencies and terrorism.

“Following the rebasing of the country’s GDP, DMO was cognisant of the fact that an improvement in the GDP, which resulted in a much lower debt-GDP ratio, does not automatically translate to an equal growth in revenue and therefore, enhanced capacity to service the debt.

“It would be illusory to rely on the ratios obtained using he rebased GDP as the appropriate benchmark to gauge the sustainability of the Federal Government of Nigeria’s public debt portfolio,” he said.