DMO Warns On Looming Debt Crisis, Pegs $6.25bn As 2018 Borrowing Limit

• Proposes national assets sales
  

BY EDMOND ODOK, ABUJA – The Debt Management Office (DMO) has warned of a looming debt crisis if the country’s high debt service to revenue ratio is not addressed.

In expressing its fears, DMO said that sustained drop in revenue, exports and Naira devaluation may see Nigeria drifting into another era of challenging debt issues, which hit an all time high in 2016

However, the nation’s debt managers said government can boost its revenue profile by not only selling some viable national assets but also expanding the tax base as well as increasing tax revenue generation and collection.

The DMO’s position is captured in its 2017 Debt Sustainability Analysis (DSA) document that said; “In order to enable government raise fresh funds to supplement its revenue for capital investments, government is encouraged to privatise some of its viable enterprises and have them listed on The Nigerian Stock Exchange.”

According to the document, this harmful experience may be avoided if the country works on staying within its 25 percent debt to Gross Domestic Product (GDP) threshold with the three tiers of government staying within a borrowing limit of not than 6.25 billion US dollars in the 2018 fiscal year.

“The Fiscal Sustainability Analysis for the Federation (federal, states and FCT), showed that the ratio of Total Public Debt-to-Gross Domestic Product, GDP, remained below its threshold throughout the projection period. The ratio of Total Public Debt-to-GDP for 2017 was projected at 19.80 percent.

“Both the External and Fiscal Sustainability Analyses showed that all the revenue indicators (the ratios of Debt-to-Revenue and Debt Service-to-Revenue) deteriorated under varying shocks, suggesting that any prolonged shocks on the revenue would lead to debt distress in the medium to long-term, except other sources of revenue are speedily developed to enhance the revenue generation performance of the country”, the document stated.

The DMO further stated that; “In order to estimate the borrowing limit for 2018, it requires the determination of the difference between the proposed Country-Specific Threshold of 25 percent and the end period”, adding that the maximum amount government can borrow, both local and external, for the 2018 fiscal “without violating the proposed Country-Specific Threshold of 25 percent up to 2020 would be $6.25 billion or N1,906 billion (at N305 per dollar).”

“Accordingly, for the fiscal year 2018, the maximum amount of $6.25 billion that could be borrowed is proposed to be sourced equally (50:50) from the Domestic and External sources, respectively, as follows: new Domestic borrowing $3.125 billion or N953.18 billion and new External borrowing: $3.125 billion or N953.18billion.”

On likely strategies required by government to enhance its revenue outline, the DMO said; “In order to enable government raise fresh funds to supplement its revenue for capital investments, government is encouraged to privatise some of its viable enterprises and have them listed on The Nigerian Stock Exchange.”

It also suggested that government must continue strengthening on-going efforts at reforming, restructuring and repositioning some of national enterprises for privatisation or commercialisation, even as it listed them to include Nigerian Postal Services (NIPOST); National Stadiums; Nigerian Security and Minting Company (NSPMC); Nigerian Commodities Exchange (NCE); and Lagos International Trade Fair Complex (LITFC).

The DMO said besides promoting wealth redistribution through public ownership of firms and assisting to deepen the domestic capital market, the sales of these enterprises would certainly save huge allocations that government budgets for such firms yearly.