February 23, 2021/DMO
Nigeria’s Medium-Term Debt Management Strategy (MTDS), 2020-2023, is formulated to guide the borrowing activities of the Government in the medium-term. The framework compares alternative funding strategies available to Government as it pursues the desired structure of debt portfolio that reflects the selected strategy considering the costs and risk trade-offs in the medium-term.
Following the expiration of the MTDS, 2016-2019 in December 31, 2019, it became imperative to develop a new Strategy for another term, 2020-2023. To this end, the Debt Management Office (DMO), in collaboration with relevant stakeholders – 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 Office of the Accountant-General of the Federation (OAGF), with technical support from the World Bank, IMF and the West African Institute for Financial and Economic Management (WAIFEM), proposed a new Debt Management Strategy for the period, 2020 â€“ 2023.
While the Report of the new MTDS was being finalised for approvals, by the Honourable Minister of Finance, Budget and National Planning (HMBNP), and thereafter, Federal Executive Council (FEC), the global economy was hit by the COVID-19 pandemic. The fiscal position of most countries including Nigeria worsened.
In the case of Nigeria, the impact of COVID-19 on crude oil prices saw over a 50 percent dip in Revenue, and a reduction in Crude Oil production and sale, as well as a limitation in terms of the level and sources of funding available to the Government, including access to the International Capital Market (ICM). These developments rendered the various assumptions and projections of the Draft MTDS, 2020-2023 exercise unrealistic, hence, the need for a revision of the Draft Strategy.
Review of the 2016-2019 Medium-Term Debt Management Strategy
The outcome of the implementation of the MTDS, shows progressive improvements over the 2015 levels, for all the Indicators, during the implementation period, with some outcomes exceeding the Targets set in the Strategy. These are highlighted in Table 1.
- In the implementation of the Strategy, it is worthy to note that the attainment of the debt portfolio target of 60:40 for Domestic debt and External debt was impaired as External debt financing was constrained due to non-access to the International Capital Market in 2019, as a result of the late passage of the 2019 Appropriation Act.
- There was improvement in the structure of Domestic debt with the issuance of 30- year FGN bond in 2019.
- Although the Strategy assumes access to concessional funding, the source is constrained by limited envelope, available to Nigeria, in view of its classification as a Lower Middle Income in 2016.
The review of the MTDS, 2020-2023 took into consideration the following parameters:
- Significant drop in Government’s revenue due to lower Oil demand and Price shocks related to COVID-19 pandemic, thus constrained Government’s funding and presenting additional borrowing requirements to the Government.
- Due to COVID-19 pandemic, accessing the ICM is no longer feasible in 2020.
- Limited access to the concessional funding from the Multilateral creditors, given the envelope available to Nigeria.
- The domestic interest rates are expected to gradually trend upwards, in view of higher expectations in inflation rates.