FG cannot afford to take additional loans, DMO warns

FG cannot afford to take additional loans, DMO warns

The Debt Management Office has warned the Federal Government against taking more loans to meet its financial obligations.

It stressed that servicing the government’s current loans was a big burden.

It disclosed this on the premise that 73.5 per cent of revenue generated this year would go into debt servicing.

According to the DMO, the projected FG’s Debt Service to Revenue ratio of 73.5 per cent for 2023 is high and cannot support higher levels of borrowing, and is also a threat to debt sustainability.

Consequently, the DMO advised the FG to focus on increasing revenue generation, stressing that attaining a sustainable Debt Service-to-Revenue ratio would require increasing FG revenue from N10.49 trillion projected in 2023 budget to about N15.5 trillion.

It gave this warning as part of recommendations to the Federal Government, following analysis of the nation’s debt profile in 2022.

According to the DMO in the report of the Annual National Market Access Country (MAC) Debt Sustainability Analysis, “the analysis of the results of 2022 MAC-DSA shows that the Total Public Debt-to-GDP ratio is projected to increase to 37.1 per cent in 2023, relative to 23.4 per cent as at September 2022.”

This, it said, was due to the inclusion of the N8.80 trillion (new borrowings) for the year 2023 at the FG’s Ways and Means at the CBN of over N23 trillion and estimated Promissory Notes issuance of N2.87 trillion in the debt stock.

The DMO said,  “The country’s debt stock remains sustainable under these criteria, but the borrowing space has been reduced when compared to Nigeria’s self-imposed debt limit of 40 per cent set in the MTDS, 2020-2023.

“On the other hand, FGN Debt Service-to-Revenue ratio at 73.5 per cent in 2023 exceeds the recommended threshold of 50 per cent due to low revenue, which means that there is need to significantly increase government revenue.

“Under the alternative scenario, the total public debt-to-GDP ratio at 45.4 per cent in 2023 exceeds Nigeria’s self-imposed debt limit of 40 per cent, while the FGN Debt Service-to-Revenue also exceeds the recommended threshold of 50 per cent.

Based on the analysis of the results of the 2022 MAC-DSA, the DMO stated that “although the baseline analysis projects total public debt-to-GDP ratio at 37.1 per cent for 2023, indicating a borrowing space of 2.9 per cent (equivalent of about N14.66 trillion) when compared to the self-imposed limit of 40 per cent, it is recommended that this should not be used as a basis for higher level of borrowing as was the case in the 2023 budget.

“This is because the outcome of the shock scenario, which is more realistic in the circumstances, exceeded the self-imposed limit.

“The projected FGN debt service-to-revenue ratio at 73.5 per cent for 2023 is high and a threat to debt sustainability. It means that the revenue profile cannot support higher levels of borrowing.

“Attaining a sustainable FGN debt service-to-revenue ratio will require an increase of FGN revenue from N10.49 trillion projected in 2023 budget to about N15.5 trillion.”