DMO: Public Debt Susceptible to Revenue Shocks

Ndubuisi Francis

The Debt Management Office (DMO) has stated that the ratios of debt-to-revenue and debt service-to-revenue which have no thresholds by the World Bank/International Monetary Fund (IMF) are expected to increase and peak at 329.5 per cent in 2025 and 56.9 per cent in 2030, respectively.

The DMO said this seriously highlights the critical importance of revenue mobilisation, which is expected to drive down the rising indicators.

Owing to this, the debt management agency also restated that Nigeria’s public debt remains within a sustainable profile, but susceptible to revenue shocks.

The 329.5 per cent debt-to-revenue projection by the DMO far outstrips the 80 per cent estimate for 2022 by top credit rating agency in Nigeria,, Agusto & Co.

In the just-released report of the 2020 Debt Sustainability Analysis (DSA) posted on its website, the DMO noted that the Risk Rating from the 2020 DSA) revealed that Nigeria’s external debt remains at a Moderate Risk of Debt distress, but sensitive to export shocks.

According to the DMO, the 2020 DSA exercise derived its baseline assumptions from the revised Appropriation Act, and the 2020-2022 Medium Term Expenditure Framework (MTEF) and Fiscal Strategy Paper, which reflect the key objectives and priorities of the draft 2021-2025 Medium Term National Development Plan and Nigeria Economic Sustainability Plan (NESP).

The DMO affirmed that the objective of the DSA was to evaluate the country’s risk distress, considering Nigeria’s  capacity to carry current debt and its future borrowings under both baseline projections and shock scenarios, adding that this helps to inform the borrowing decisions of government.

The agency stated the DSA adopted the revised World Bank and IMF Low Income Countries Debt Sustainability  Framework (LIC-DSF), which compares a country’s debt burden indicators against the World Bank/IMF thresholds based on the Composite Indicator ( CI), determined by the CPIA rating and other macroeconomic variables such as Gross Domestic Product  (GDP) growth rate, remittances, import coverage of reserves and world economic growth.

Although the total public debt burden stood at N39.556 trillion at end of December 2021, excluding the Central Bank of Nigeria’s Ways and Means Advances to the Federal government, the DSA report stated that Nigeria’s  total public debt remains at a a Moderate Risk of Debt distress. It added that the ratio of total public debt to GDP at 22.47 per cent as at December 2021 was still  below the nation’s self-imposed 40 per cent ceiling throughout the projection period.