Nigeria’s Minister of Finance, Zainab Ahmed, has disclosed that the federal government intends to securitize the entirety of its loan from the Central Bank. The loan, which will be transformed into security (bond) with a 40-year duration, would assist the nation to increase its fiscal leeway to prevent bunching, which is when multiple obligations come due at once.
This information is based on what the Finance Minister, Zainab Ahmed, said during yesterday’s Ministerial Presentation of the 2023 budget.
Nigeria has a total debt load equal to 25% of its revenue, and with president, Muhammadu Buhari’s, permission, the inclusion of borrowings from the CBN through the Ways and Means provision will bring this figure to 35 percent.
The Minister stated that the total public debt as a percentage of GDP which stood at 23.06 percent as of June 30, 2022, is within the 55% threshold recommended by the International Monetary Fund/World Bank. After including the outstanding balance on CBN Ways and Means Advances, total public debt will remain under Nigeria’s self-imposed limit of 40 percent set in the MDT 2022-2023.
According to the Minister, the Ministry has been very prudent in terms of borrowing and trying to stay within the limit set by the debt management strategy. She said most other countries are way above this threshold with debt as a percentage of GDP of around 70%, some are close to 100%.
However, to stretch out repayment obligations and give the country more fiscal space, Nigeria has been working overtime under the debt management strategy to re-balance its debt portfolio to longer-tenured loans as opposed to shorter-tenured loans.
Extracts from the presentation
The Finance Minister explained that all the indices and pointers suggest that Nigeria’s debt is under regulatory targets as the FG has been utilizing appropriate debt management tools to streamline the cost and risk profile in the debt portfolio. The Minister also stressed the following:
“The exposure of the Total Public Debt portfolio to exchange rate risk remains moderate, as the share of Domestic Debt in the Total Public Debt comprises 60%”. What this means is that the risk associated with the repayment of dollar-denominated debts is minimal because foreign debt makes up a smaller portion of the country’s total debt.
“Nigeria is not planning on restructuring its debt as it remains committed to domestic and external debt obligations.”
“The exposure to refinancing risk remained stable as a result of the strategy of issuance of long-dated securities in the domestic and international markets in addition to accessing long-term funds from multilateral and bilateral lenders.”