FG Targets Better Debt Management With New Strategy

By JOSEPH CHIBUEZE

THE Federal Government has unveiled a new strategy it hopes will help it better manage its public debts. The new strategy, the Medium-Term Debt Management Strategy (MTDS) 2024-2027 succeeds the elapsed MTDS 2020-2023.

MTDS is a Public Debt Management (PDM) tool that links borrowing with the macroeconomic framework of a country to ensure that the costs and risks in the public debt portfolio are within sustainable levels.

As at the end of the first quarter of 2025, Nigeria’s total public debt was ₦149.39 trillion (approximately $97.32 billion) made up of ₦78.76 trillion domestic debt and ₦70.63 trillion external debt.

Experts have raised concerns that the country’s debt could become unsustainable given the rate at which it is rising even though the government has argued that the debts are still within acceptable limits.

Every four years, the Debt Management Office (DMO), in conjunction with relevant Ministries, Departments and Agencies (MDAs) of the Federal Government formulates the MTDS to guide its PDM decisions and operations with technical support from the World Bank and International Monetary Fund.

The Debt Management Office (DMO) which announced the unveiling in a statement posted on its official website over the weekend, said the formulation and implementation of an MTDS is widely recognized as an international best practice in PDM.

It said the process leading to the formulation of MTDS 2024 – 2027 involved the consideration of various strategies aimed at determining the best strategy that meets the financing needs of the government, while meeting its cost and risk objectives.

It said the MTDS 2024 – 2027, covers the FGN Debts, as well as the external debt of sub-nationals but excluding the domestic debt of the sub-nationals as the MTDS is designed to guide the borrowing and debt management strategy of the central government. DMO added that it also includes explicit Contingent Liabilities of the FGN.

According to the DMO, MTDS 2024 – 2027 was initially completed using the macroeconomic projections in the medium-term expenditure framework (MTEF) 2024 – 2026 with 2023 as the base year. “However, the volatile macroeconomic environment occasioned by wide fluctuations in exchange rate made the assumptions unrealistic,” DMO said, adding, “This led to the updating of the MTDS 2024 – 2027, with projected macroeconomic data in the approved MTEF 2025 – 2027 and 2025 Appropriation Act to reflect current realities.”

The DMO said a review of the performance of the MTDS 2020-2023 in terms of the cost and risk indicators of the FGN debt portfolio as at 31 December 2023, and compared with the set targets, reveals that the total public Debt-to-GDP ratio was 40.57 per cent as at 31 December 2023 and 52.25 per cent as of 31 December 2024, which exceeded the country-specific target of 40 per cent but was below the 70 per cent threshold contained in the Market-Access Country-Debt Sustainability Framework (MAC-DSF) developed by the IMF for market access countries like Nigeria, and which is the same as the ECOWAS Convergence threshold of 70 per cent.

It said the increase in Debt-to-GDP from 19 per cent in 2019 to 40.57 per cent in 2023 and 52.25 per cent in 2024 was due to higher levels of new borrowings, issuance of promissory notes, as well as the inclusion of N30 trillion Ways and Means Advances (WMAs) of the Central Bank of Nigeria (CBN) in the FGN’s domestic debt stock.

It also noted that the Average Time to Maturity (ATM) was 12.77 years and 11.05 years in 2023 and 2024 respectively, as against a minimum target of 10 years, while Debt Maturing in one year as a percentage of total debt was 10.44 per cent and 13.91 per cent during the review periods, as against a maximum target of 20 per cent. Long-term to short-term domestic debt was 88:12 and 82:18 in 2023 and 2024 respectively, as against the target of minimum 75: maximum 25.

“These show that the targets in the MTDS 2020 – 2023 were mostly outperformed,” DMO said. “As stated above, the exchange rate of USD1/N800 in the 2024 Appropriation Act initially used to prepare the MTDS was jettisoned because the official exchange rate was actually higher than this, indeed, the end period exchange rate as of 31 December 2024 was USD1/₦1,535.32. Other macro and debt data for 2024 were updated, while macro projections in the MTEF/FSP 2025-2027 and the 2025 Appropriation Act were used for the projections,” DMO said.

The MTEF 2025-2027 projected that real GDP will increase to 4.6 per cent in 2025, moderate to 4.4 per cent in 2026 and rise to 5.5 per cent in 2027. These will be driven by increased investments in infrastructure, agriculture, and social services. Inflation is projected to decline progressively to 10.04 per cent in 2027, as the fiscal and monetary authorities continue to implement programmes and policies to moderate inflation.

“Although the re-composition of the basket for the computation of inflation dropped in January 2025, investors will still expect to receive real rates,” DMO said.

“The interest rates were shocked moderately across maturities by 150bps and 300bps for baseline and extreme scenarios respectively. Also, Yields of Nigeria’s Eurobonds were benchmarked against similar US Treasury Yields plus market-determined Yield Spreads as at the date of projection.

“The alternative strategies were designed based on the funding needs of the government and its plans to borrow from domestic and external sources using existing and new debt instruments such as the Domestic FGN US Dollar Bond introduced in September 2024 and planned introduction of Environmental Social and Governance (ESG) Compliant Securities, subject to market conditions.”

(The Guardian)