Lagos — Nigeria increased the amount it is allowed to borrow as a proportion of GDP to 40% from 25% as part of a new debt-management strategy approved by its cabinet on Wednesday.

The higher limit will enable borrowing to fund the budget deficit and other government obligations, including promissory notes issued to settle arrears, as well as lending from the central bank, the debt management office (DMO) said in a statement on its website.

The debt strategy is for the period 2020 to end-2023 and reflects current economic realities, projected trends, and the impact of the Covid-19 pandemic, according to the statement.

The economy of Africa’s largest oil producer probably contracted in 2020 for the first time since 2016 as the price of crude plunged and added to dollar shortages. The government needs the increase in the borrowing limit to fast-track growth, Samuel Sule, director of the financing group at Renaissance Capital, said.

The DMO will target a 10-year average tenor of obligations in its portfolio, raised mainly from the domestic markets, with long-term securities making up at least 70% of the stock. The new strategy will ensure that government debt is sustainable, the DMO said.

The country’s public debt is projected to increase to 34% of GDP in 2020 from 29% in 2019 and will rise to about 36.4% in the medium term, according to the International Monetary Fund’s (IMF)  latest report on the country.

Interest payments as a proportion of revenues for the national government, estimated at 92.6% in 2020, is projected to decline to 60.8% in 2021 before rising to 94.1% of revenue by 2025, according to the IMF.

The government will have to work on limiting its debt-service costs because the implications of a further rise are apparent to all, Sule said. Revenue — oil and non-oil — needs to grow further and the strategy of debt optimisation has to be continued, he said.



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