Financial experts have reacted as the Debt Management Office advised the Federal Government against taking on more debt, claiming that this year’s revenue would be utilized to service debt to the tune of 73.5%.
According to Vanguard, the DMO claimed that the estimated federal government debt service to revenue ratio of 73.5% for 2023 is too high, cannot support greater levels of borrowing, and also poses a threat to the sustainability of the debt.
In order to achieve a sustainable Debt Service-to-Revenue ratio, the DMO encouraged the FG to concentrate on increasing revenue production, emphasizing that federal government income must grow from the N10.49 trillion envisaged in the 2023 budget to around N15.5 trillion.
Following an analysis of the country’s debt profile in 2022, it issued this warning as part of recommendations to the federal government.
According to the DMO in the report of the Annual National Market Access Country Debt Sustainability Analysis, “the analysis of the results of 2022 MAC-DSA shows that the Total Public Debt-toGDP ratio is projected to increase to 37.1 percent in 2023, relative to 23.4 percent as at September 2022, due to the inclusion of the N8.80 trillion (new borrowings) for the year 2023, the FGN Ways and Means at the CBN of over N23 trillion and estimated Promissory Notes issuance of N2.87 trillion in the debt stock.
In response to the warning from yesterday, the Head of Equity Research at FBNQuest Securities Limited, Tunde Abidoye, advised the FG to follow the DMO’s recommendations because the country’s debt service-to-revenue ratio was extremely dangerous.
“When we look at things from a debt service-to-revenue ratio, the country is actually in a very precarious situation,” he remarked.
“I believe that all of those restrictions need to be followed, along with some form of discipline. So I’m hoping the FG pays attention to the DMO,” he said.
Vice Chairman of Highcap Securities, David Adonri also stated: “This warning from DMO against future borrowing by FGN is belated because excessive borrowing by the previous administration has already hurt the country’s financial economy.
“However, it’s better late than never. The current debt liability is already suffocating FGN. Hope FGN will listen to this wise counsel because a word is enough for the wise”
Analyst and managing director of APT Securities Limited, Mallam Garba Kurfi, said: “It is necessary to warn regarding borrowing.
“However, I anticipate the federal government will borrow less now that the fuel subsidy has been eliminated. The other steps the government has taken to generate revenue, particularly the rise in crude oil production, would help the government’s financial situation.”
Meanwhile, the President and CEO of Wyoming Capital and Partners, Tajudeen Olayinka, said that a country’s debt profile depends on the economic priorities of the government and the way the economy is structured in relation to other macroeconomic factors.
‘’A government with a focus on private sector dominance would need less public debt and more private capital to fund projects and stimulate capital formation in the economy, in contrast to a government with a focus on public sector dominance, which would accumulate more public debt.
Also, Senior Associate, Parthian Partners, Marvellous Adiele, agreed with DMO’s recommendations and stated that additional borrowing will raise our public debt as well as the percentage of future earnings utilized to pay off debt.
“Our public debt is already at an all-time high (N46.25 trillion as of December 2022), and the government needs to be cautious about further borrowing while improving revenue generation and enacting reforms to reduce deficit financing,” he stated.
