Despite the detrimental impact of Nigeria’s debt profile on the economy, the Debt Management Office (DMO) maintains that the country’s debt is still manageable because it has not yet reached the IMF and World Bank’s debt sustainability thresholds.
According to it, the Economic Community of West African States (ECOWAS) has set a maximum debt limit of 70% of a country’s GDP for West African countries, with Nigeria still at 21%, while the DMO has set a 40% benchmark for external debt, with Nigeria still at 8%. The domestic debt is $53.04 billion, with the federal government owing $42.1 billion and the states owing $10.9 billion, totaling $86 billion (N32. 9 trillion).
Monday Usiade, a representative of the DMO Director-General, said this during a presentation on Nigeria’s domestic and foreign debt management at the West African Region – Debt Advocacy and Training Sessions in Abuja, which was organized by the African Network on Environment and Economic Justice (ANEEJ) in collaboration with the African Forum and Network on Debt and Development (AFRODAD).
He said they provided the debt sustainability analysis using the World Bank/IMF template, which they use to analyze the nation’s debt annually and advise the government on borrowing, adding that given Nigeria’s size of economy, which is relatively large compared to other smaller countries, the debt to GDP ratio as of 2019 stood at 19%, which is relatively small.
According to him, the debt will only increase by 1.6 percent in 2020, and if measured against the size of Nigeria’s economy, the country will still be able to cover the debt.
Usiade explained that the DMO office had imposed a debt specific ceiling of 40%, despite the World Bank and IMF recommending that we might go up to 55%.
“We have stated that we will always ensure responsible borrowing; Nigeria is still at 21%, which is relatively low, even at the 40% threshold.
“All indicators point to Nigeria not being in debt distress,” he remarked.
In his remarks, ANEEJ’s Executive Director, David Ugolor, stated that if African countries’ debt issues are not properly managed, it has the potential to quietly send thousands to their deaths and throw millions of Africans into poverty, as the economies of some West African countries are already showing signs of distress.
While an IMF debt sustainability analysis as of February 2021 shows that the majority of West African countries are still in mild financial distress, further research demonstrates that debt accumulation before to the breakout of COVID-19 outpaces the potential of growth to finance debt service.
He bemoaned the fact that five of ECOWAS’ 15 member members are already heavily in debt.