The Federal Government has announced plans to step up its use of sovereign guarantees to fund infrastructural development in a bid to reduce the need for raising debt for such projects.
Nigeria intends to raise the value of these assurances to 5% of Gross Domestic Product (GDP) from 1.5% that it was in 2019.
According to a report from Bloomberg, this disclosure was made by the Director-General of the Debt Management Office (DMO), Patience Oniha, while speaking at a conference in Lagos.
What the Director-General of the Debt Management Office is saying
Oniha said, “On the part of the sovereign, we want to give guarantees. We can’t keep borrowing on the balance sheet.”
The DMO boss pointed out that the Nigerian government is looking at guarantees as a way of cutting down the country’s public debt so that investors will be able to raise funding from banks and institutions based on these guarantees.
Oniha said that the government has started the process of selecting an adviser that will develop a framework to build capacity to identify, review and evaluate projects for sovereign guarantees.
She said, “We are actually asking for an embedded adviser to handhold us through that process because we expect the volume of off-balance-sheet transactions to be significant.’’
Nigeria’s public debt, including central bank overdrafts, which was put at 34.4% of the GDP in 2020, is adjudged to be relatively low compared to its contemporaries. However, the major challenge for the country has always been that of revenue as it spends over a third of its revenue servicing its debt due to very low revenue generation.
What you should know
- Nigerians have been very critical of the country’s ever-increasing debt profile which they allege is dangerous for its future.
- The Security and Exchange Commission had on Thursday said that the rising debt service is an economic threat to the country just as the Minister for Finance, Budget and National Planning, Zainab Ahmed, had still insisted that the Federal Government will have to borrow to fund the 2021 budget.
- Although the government has insisted that Nigeria’s debt to GDP ratio is still within a manageable limit, it recognizes the fact that the country needs to increase its revenue-generating capacity to be able to service its debt and meet other obligations.
- Nigeria plans to boost infrastructure investments to stimulate economic growth after exiting its second recession in 4 years in the fourth quarter.
- Moody Investors Service had said in a report that Nigeria needs at least $3 trillion over 30 years to reduce its infrastructure deficit.