Managing Nigeria’s Debt Portfolio

The fact that Nigeria’s debt profile keeps increasing without any corresponding economic growth is very concerning.

In January 2023, President Muhammadu Buhari authorized the appropriation bill, which had been originally proposed to be voted into law at a cost of N20.51 trillion, to be increased to N21.83 trillion.

The president then announced a planned loan of N1 trillion that will be sourced by Ways and Means, totaling a bill of N23 trillion that will be securitized. According to the Debt Management Office (DMO), the incoming administration is expected to inherit a debt stock of N77 trillion in May or June 2023.

The Debt Management Office (DMO) is a governmental office responsible for the management of Nigeria’s debt. The management of public debt is as crucial as generating revenue. However, the goal of public debt management is to guarantee that the government’s financial requirements and payment commitments are met over the term duration at the lowest cost possible, along with a reasonable level of risk.

Nigeria’s economy continues to be in a gloomy position due to poor management of debt and the constant rise in inflation. For the purpose of reviving the economy, the government might employ a variety of measures for controlling and servicing existing and future debt.

Sound Debt Management Strategy

Many times, problems with public debt management might be linked to policymakers’ disregard for the benefits of sound debt management. This uncertainty can be decreased with a proven track record of implementing sensible macro policies, assessing risk and cost considerations, coordinating debt and utility accountability, repeating the debt limit, and reevaluating the costs of the debt burden. It will be vital for the government to improve its debt management processes, including outlining precise rules for borrowing money and ensuring that it is done in a way that is transparent and accountable.

Financial Reforms

Instead of raising the tax rate for current taxpayers, the tax net can be widened. The government would generate more income and have less debt to pay off if more taxpayers paid their fair share of taxes. Also, the government’s revenue would increase dramatically with even a little increase, which might result in lowered tax rates for all taxpayers. In order to lessen its reliance on short-term financing, the government must take action by going for longer term obligations. If bonds are issued, this can mean increasing the long-term financing options available.

Even though the crisis of the country is not majorly caused by the debt management policies, the governments should make an effort to guarantee that the rate of rise of their public debt is structurally manageable and can be repaid under a variety of conditions while satisfying risk and cost obligations. Furthermore, it is important to carefully build public debt portfolios, taking into account the foreign debt’s currency composition, term structure, and interest rate commitments.

Enhancing economic growth should be the government’s top priority as this would necessitate a combination of structural reforms and focused investments in major sectors of the economy. Therefore, conscious efforts must be made to eliminate the high rates of fraud and waste in governmental operations as well as to diversify the nation’s productive capacity.

Emmanuel Otori has over 10 years of experience working with 100 start-ups and SMEs across Nigeria. He has worked on the Growth and Employment (GEM) Project of the World Bank, GiZ, Consulted for businesses at the Abuja Enterprise Agency, Novustack, Splitspot and NITDA. He is the Chief Executive Officer at Abuja Data School.