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DMO sets borrowing limit at 40% of GDP

By on May 14, 2013

The Debt Management Office has set the nation’s borrowing limit at 40 per cent of the Gross Domestic Product.

The Director-General, DMO, Dr. Abraham Nwankwo, said this at the ‘Debt Sustainability Workshop’, which opened in Abuja on Monday.

Nwakwo said despite the World Bank’s credit rating, which gave the country clearance to borrow up to 56 per cent of the GDP, the nation would limit its borrowing to 40 per cent.

He said given the nation’s debt history, it would not exhaust the limit, which had been set by the World Bank.

The DMO boss said, “We rather under-borrow than over-borrow. That is our rule, to be on the conservative side. Even though when countries were rated, our net present value to Gross Domestic Product ratio has been reviewed to 56 per cent, Nigeria advisedly will remain at 40 per cent for practical purposes.

“We will still continue noting that we belong to the group, which has been allowed to borrow up to 56 per cent of the Net Present Value of the GDP.

“These ratios are fixed for all countries in that group. But each country has to look at its own peculiarities. That is why the case of Nigeria, in terms of our experience of debts in the past, we must not have that experience again. And if you look at our economy, you will see that we are still over dependent on oil – over 80 per cent dependent on oil.”

The 40 per cent borrowing limit, however, contradicts the 30 per cent announced by President Goodluck Jonathan in 2012.

At the presentation of the 2012 budget, Jonathan lamented the rate at which the nation’s debt had been rising, especially the domestic component.

To limit the growth, he had said the government would not expand the debt growth rate beyond 30 per cent.

At the moment, the debt to GDP is less than 20 per cent. With the latitude of 40 per cent debt to GDP ratio, the government can add up to 100 per cent to the current debt level.

Nigeria’s GDP as of December 31, 2012 stood at N41.18tn, according to the National Bureau of Statistics. A debt limit of 40 per cent based on this GDP means that the country can grow its debt profile to N16.47tn.

The DMO put the nation’s external debt at $6.67bn as of March 31, while it put the domestic debt component at N6.537tn as of December 31, 2013.

The nation’s growing debt profile, which has been a concern to many stakeholders, is reflected in the increasing cost of servicing debts.

The Federal Government will spend a total of N591.76bn to service debts this year, according to details provided in the 2013 budget.

Out of this, N543.38bn will go into servicing of domestic debts, while foreign debts will gulp N48.39bn.

In 2010, the total allocation for servicing both domestic and foreign debts stood at N517.07bn, but the figure has been increasing over time with the President expressing dismay over the growing domestic debt during the presentation of the 2012 budget.

 

 

 

[Punch]