By Chinwendu Obienyi
Following a recent alarm that Nigeria is at risk of debt distress by members of the Monetary Policy Committee (MPC), the Debt Management Office (DMO) has categorically stated that the country was not at risk of debt distress due to its $15.9 billion Eurobonds.
The DMO made the clarification in a statement on its website yesterday in reaction to a warning by Robert Asogwa, a member of the MPC of the Central Bank of Nigeria (CBN).
Asogwa had expressed worry over the country’s rising debt, particularly the increasing accumulation of Eurobonds in the external debt component.
He noted that the government’s preference of Eurobonds at high interest costs with its associated exchange rate risk may likely hurt Nigeria sooner than anticipated. “The escalating fiscal sector deficits with the attendant rising debt ratios are part of the weak links in the domestic economic environment. The poor revenue growth in a period of expanding government expenditures has continued to balloon budget deficit levels in the first quarter of 2022, similar to the trend witnessed in 2021.”, Asogwa warned.
But in its reaction, the DMO stated that Asogwa’s statements may have been made without consideration to the country’s borrowing needs as captured in the Annual Budgets, Medium Term Expenditure Framework and the Debt Management Strategy. The DMO noted that the borrowing needs are derived from the Annual Budgets while the borrowing mix is based on the subsisting Debt Management Strategy.
According to the Office, successive Debt Management Strategies had always indicated that the Federal Government’s preferred source of borrowing was concessional sources rather than commercial sources like Eurobonds.
“For instance, one of the objectives of the Debt Management Strategy 2020-2023 is maximising funds available to Nigeria from multilateral and bilateral sources in order to access cheaper and long tenored funds. “Given the size of new borrowings in the annual budgets over the years, it will not have been proper for the Federal Government to raise all the funds from the domestic market.
“That will result to government crowding the private sector and raising borrowing rates. Consequently, some part of the required funding has to be raised externally,” the DMO said.