Nigeria’s debt management strategy for the medium term (2024-2027) outlines the government’s approach to financing its operations while ensuring debt sustainability. Developed in collaboration with international institutions like the World Bank and the IMF, the strategy aims to balance the need for borrowing with responsible fiscal management, minimizing risks and costs associated with accumulating debt. A central element of this plan is the projection that Nigeria’s debt-to-GDP ratio could reach 60% by 2027, a significant increase from the previously established ceiling. This projection is based on a revised framework that takes into account various economic factors and seeks to establish a sustainable trajectory for the nation’s debt profile.
The strategy emphasizes a multi-pronged approach to debt management. Firstly, it prioritizes meeting the government’s financing needs and fulfilling payment obligations in the short to medium term while carefully considering the cost-benefit trade-offs within the debt portfolio. This involves strategically managing the mix of domestic and foreign debt to optimize costs and mitigate risks associated with currency fluctuations. Secondly, the strategy aims to achieve an optimal composition of the public debt portfolio that ensures long-term sustainability. This involves setting benchmarks for key fiscal and risk indicators, guiding borrowing decisions and promoting responsible debt management practices. Finally, the plan seeks to deepen the domestic securities market by introducing new products, fostering greater participation and enhancing the overall efficiency of the financial system.
The MTDS establishes specific targets for several key indicators. The debt-to-GDP ratio, a critical measure of a country’s ability to manage its debt, is projected to reach a maximum of 60% by 2027. Interest payments, another crucial indicator of debt sustainability, are capped at 4.5% of GDP. Sovereign guarantees, which represent contingent liabilities for the government, are limited to 5% of GDP. These targets reflect the government’s commitment to maintaining fiscal discipline and ensuring that debt levels remain within manageable limits. The strategy also aims to shift the balance between domestic and external debt to a 55:45 ratio, reducing reliance on foreign borrowing and mitigating exchange rate risks.
The framework also emphasizes the importance of managing debt maturity profiles. It aims to ensure that no more than 15% of total debt matures within a single year, minimizing the risk of refinancing difficulties. Furthermore, it targets an average time to maturity of at least 10 years, spreading out repayment obligations and reducing pressure on government finances in any given year. These measures are intended to create a more stable and predictable debt profile, reducing vulnerability to short-term market shocks and ensuring the government’s ability to meet its obligations.
The development of the MTDS involved extensive consultations with key stakeholders within the Nigerian government, including the Central Bank of Nigeria and the Ministry of Finance. The process also benefited from technical input from international financial institutions, the World Bank and the IMF, ensuring alignment with global best practices and enhancing the credibility of the strategy. This collaborative approach is designed to build confidence among investors, credit rating agencies, and international partners, signaling Nigeria’s commitment to responsible debt management and strengthening its financial standing. The framework is expected to provide a clear roadmap for managing public debt in the coming years, fostering greater transparency and accountability in the government’s fiscal operations.
The recent rebasing of Nigeria’s GDP by the National Bureau of Statistics has provided a more accurate picture of the country’s economic size and its impact on the debt-to-GDP ratio. The rebasing exercise, which incorporated previously unaccounted-for sectors like the digital economy and the informal sector, significantly increased Nigeria’s nominal GDP. This resulted in a lower debt-to-GDP ratio, statistically improving Nigeria’s debt sustainability indicators. However, it is crucial to recognize that this rebasing does not change the actual amount of debt owed or the associated servicing costs. Despite the apparent improvement in the debt-to-GDP ratio, the government still faces the challenge of managing a substantial debt burden and ensuring that borrowing remains sustainable in the long term. The continued growth of the debt stock necessitates careful monitoring and adherence to the principles outlined in the MTDS to safeguard the nation’s fiscal health.
