The Debt Management Office (DMO) has pegged borrowing next year to $7.1 billion in a bid to control public borrowing and keep Nigeria’s debt within sustainable threshold.

In its latest report on the national debt sustainability analysis (DSA), the debt office stated that the Net Present Value (NPV) of the country’s debt, currently at 16.2 percent of gross domestic product, would crash to about 2.2 percent by 2020 and 0.9 percent by 2029, if effective debt management practices are put in place.

Abraham Nwankwo, director general of DMO, said with this forecast, total public debt is expected to grow from $31.4 billion presently to about $38.5 billion next year, to be sourced from both domestic and external institutions in a 60:40 proportion respectively, in line with last year’s DSA.

“Nigeria’s debt is sustainable, as current NPV of external debt-to-GDP ratio estimated at about 3.1 percent is expected to decline to about 1.1 percent in 2020, with the ratio maintaining an average of 0.5 percent thereafter over the medium-to-long term,” Mr. Nwankwo said.

“The maximum government borrowing for 2011 is put at about N639 billion and $2.84 billion to be obtained from domestic and external sources respectively,” he said, adding that government is at liberty to explore other financing options for projects, including accessing International Capital Market (ICM), domestic debt market, and private sector investments, under the public-private partnerships (PPP).

According to the report, NPV as a percentage of total revenue, would remain within sustainable limits, with a peak of 129.4 percent this year, which is still within the 250 percent threshold.

“The NPV of total debt ratio is 42 percent of GDP by 2015, marginally exceeding the 40 percent threshold, while total debt-to-revenue ratio will exceed the 250 percent mark by 2012, indicating that under the most extreme stress test condition, Nigeria’s total debt would not be sustainable in the medium to long terms,” the report said.

Similarly, liquidity indicators show that the NPV of total debt service-to-revenue would peak at about 21.9 percent in the next two years, before maintaining an average of 9 percent between 2013 and 2029, and still remain within the 30 percent sustainability bracket.

It was learnt that one of the most significant recommendations from the DSA exercise was the need for a sound fiscal management policy, particularly in the face of a likely rise in capital expenditure as a result of an envisaged accelerated economic growth and poor revenue earnings from non-oil sources.

Other recommendations include the pursuit of policies that would promote macroeconomic stability; acceleration of non-oil growth and concentration on growth enhancing infrastructure, as well as expanding the sources of internally generated revenue (IGR) and improvement on the efficiency of revenue collection process.

The DSA also stressed the need for an aggressive marketing of the federal government bonds to Nigerians in the Diaspora to diversify the investor base and reduce the pressure in the price of the Federal Government bond.

The DMO in December last year raised similar concerns about the sustainability of Nigeria’s domestic debt. In its report entitled ‘National Debt Management Framework: 2008 to 2012’, the office stated that though Nigeria seems not to have any domestic debt sustainability problems over the medium term, the country may face challenges servicing the debt by 2010.

“Interest payments/domestic budget revenue is within the threshold boundaries in the medium term. The only exception is the interest payments/domestic budget revenue ratio in the year 2010. Its value is higher than the upper boundary of the threshold,” the framework report added.

Nwankwo said as part of effort to adopt sound debt management practices, the federal government will continue to subject itself to the discipline of the market by raising funds from the domestic bond market, instead of the initial practice of ways and means to sustain government funding.

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