Managing Nigeria’s Debt Portfolio
Emmanuel is a Small Business Consultant, Start-Up Advisor and Consultant…
The fact that Nigeria’s debt portfolio keeps increasing without any corresponding economic growth is concerning. In January 2023, President Muhammadu Buhari authorized the appropriation bill, which had been originally proposed to be signed 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 need to employ a variety of measures for controlling and servicing Nigeria’s debt portfolio. These include:
- Sound Debt Management Strategy
Many times, problems with public debt management can be linked to policymakers’ disregard for the benefits of sound debt management. This uncertainty can be decreased with a proven track record of implementing sustainable 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.
2. 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.
Although Nigeria’s crises is not majorly caused by debt management policies, the government should make an effort to guarantee that the rise of its 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.