Financial Foresight: Why FG Must Sidestep Borrowing And Additional Debt At All Cost – DMO

• DMO warned FG against additional borrowing due to high Debt Service-to-Revenue ratio.

• DMO advised FG to focus on revenue generation & recommended 6 ways to reduce borrowing.

• DMO’s warning comes as debt profile continues to grow.

EKO HOT BLOG reports that the Debt Management Office (DMO) has warned the Federal Government against additional borrowing, saying 73.5% of revenue generated this year will be used to service debt.

The DMO said that the projected FGN Debt Service to Revenue ratio of 73.5% for 2023 is high and cannot support higher levels of borrowing, and is also a threat to debt sustainability.

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Consequently, the DMO advised the FG to focus on increasing revenue generation, stressing that attaining a sustainable Debt Service-to-Revenue ratio will require increasing FGN revenue from N10.49 trillion projected in 2023 budget to about N15.5 trillion.

The DMO’s warning comes as the nation’s debt profile continues to grow. As of September 2022, the total public debt-to-GDP ratio was 23.4%. However, the DMO projects that this ratio will increase to 37.1% in 2023, due to the inclusion of the N8.80 trillion (new borrowings) for the year 2023, the FGN Ways and Means at the CBN of over N23 trillion and estimated Promissory Notes issuance of N2.87 trillion in the debt stock.

The DMO’s recommendations include:

1. Not using the baseline analysis as a basis for higher level of borrowing as was the case in the 2023 budget.

2. Strictly adhering to the provision of extant legislations on government borrowing.

3. Paying more attention to revenue generation by implementing far reaching revenue mobilization initiatives and reforms.

4. Encouraging the private sector to fund infrastructure projects through the Public-Private Partnership (PPP) schemes.

5. Taking out capital projects in the budget that are being funded from borrowing, thereby reducing budget deficit and borrowing.

6. Reducing borrowing through privatization and/or sale of government assets.

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