From Uche Usim, Abuja

As Nigeria battles dwindling revenue challenges, the federal government, on Thursday, recommended the strengthening and continuing implementation of identified Strategic Revenue Growth Initiatives (SRGIs) to address the horror and ultimately widen the fiscal space.

The recommendation was contained in the nation’s Debt Sustainability Analysis for 2021 released on Thursday and posted on the website of the Debt Management Office (DMO).

Specifically, the DSA recommended a strategic implementation of the Petroleum Industry Act (PIA), 2021, which is expected to galvanize investment in the oil and gas sector, especially with the international oil companies wishing to divest their portfolios to other climes where the energy transition agenda is being aggressively implemented.

It also recommended a sustained implementation of the National Development Plan (NDP), 2021-2025 to maintain the recovery in the economy, while rationalizing expenditure by focusing on priority spending on the growth-enhancing sector of the economy.

It identified real Gross Domestic Product growth, real interest rate and exchange rate as key challenges that could push total public debt up this year and in 2023.

The DSA indicated that Nigeria adopted Market Access Country-Debt Sustainability Analysis (MAC-DSA) Framework to conduct its debt sustainability exercise in 2021, however, the Low-Income Countries Debt Sustainability Framework (LIC-DSF,) was used in 2020, due to larger share of concessional debt, which accounted for 59.92 percent of the country’s External Debt stock.

On the challenges of growing public debt, the DSA identified “Standard Macro-Fiscal shocks are Primary Balance, real GDP growth, real Interest Rate, real Exchange Rate and Combined Macro-Fiscal.

“Under the real GDP Growth Shock in which the GDP is lower than the baseline by 1 percentage point on the average in 2021 and 2022, the Total Public Debt-to-GDP ratio increased to 26.1 percent in 2023 compared to 25.5 percent in the Baseline, but declined to 23.9 percent in 2026 compared to 23.6 percent in the Baseline.

“The Primary Balance Shock showed a similar trend with an increase of Total Public Debt-to-GDP ratio to 27.0 percent in 2023 compared to 23.6 percent in the Baseline, reflecting the impact of increasing Gross Financing Needs.

“The Primary Balance is defined as the difference between Government Revenue and Non-interest Expenditure (i.e. Expenditure minus payment on Interest and Principal).

“The real Interest Rate Shock with an increase in the interest rate by 200 basis points over the projection period will increase the Debt service-to-Revenue ratio to 29.3 and 32.1 percent in 2022 and 2023, respectively compared to 28.7 and 31.5 percent in the Baseline.

“The real Exchange Rate Shock with depreciating the Naira Exchange rate to the US Dollar by 50 percent, the maximum historical movement observed over the past ten years, will increase the Total Public Debt-to-GDP ratio to 30.9 and 30.5 percent in 2022 and 2023, respectively, compared to 26.1 and 25.8 percent in the Baseline.”

According to the analysis, “70.48 percent of FGN’s Total Public Debt stock as at December 31, 2020 was market-based debt, which comprised domestic debt with a share of 55.42 percent and External Debt accounting for 15.06 percent.

“Of the External Debt portion, Eurobond accounted for 33.49 percent in 2020. Furthermore, Nigeria increased its visibility in the International Capital Market (ICM) with the issuance of USD4.0 billion Eurobonds in three tranches of 6.25% USD1.25 Billion (7-year), 7.35% USD1.5 Billion (12-year) and 8.25% USD1.25 Billion (30-year) in 2021

“These developments give further justifications for the adoption of MAC-DSA Framework.”

The 2021 MAC DSA Exercise was conducted by the Debt Management Office (DMO) from November 2-11, 2021 in conjunction with other stakeholders, namely: the Federal Ministry of Finance, Budget and National Planning (FMFBNP), Central Bank of Nigeria (CBN), Budget Office of the Federation (BOF), National Bureau of Statistics (NBS), and the Office of the Accountant-General of the Federation (OAGF).