Understanding Nigeria’s debt management strategy

Nigeria is facing significant challenges in managing its debt and generating enough revenue to fund its budget without resorting to borrowing from international markets. An International Monetary Fund (IMF) technical assistance mission recently met with Nigeria's Debt Management Office to discuss the country's Medium Term Debt Management Strategy. Egie Akpata, Director of Union Capital Markets, shared his insights on the IMF's recommendations and Nigeria's efforts to boost non-oil revenues. According to Akpata, the IMF's suggestions are likely to focus on familiar themes such as reducing subsidies, increasing taxes, and cutting government costs. However, he questioned if these recommendations would bring anything new to the table, considering Nigeria's existing debt management strategies. Nigeria aims to shift towards a 60% to 40% ratio of international and local borrowing, but faces challenges in obtaining sufficient unrestricted foreign currency to support the budget. The IMF team suggested that Nigeria should avoid borrowing from international debt markets for the time being. Akpata highlighted that given the size of Nigeria's budget, tapping into the Euro bond market next year seems inevitable. He noted that Nigeria needs substantial cash inflows for budget support, particularly for overhead expenses. While Nigeria has made efforts to enhance revenue collection through measures like a possible VAT increase and revised petroleum contracts, it may still need to seek external financing to bridge its budget gap. One of the key pillars of Nigeria's revenue strategy is the Federal Inland Revenue Service (FIRS) aiming to generate 80% of revenues from non-oil sources within three years. Akpata expressed skepticism about the feasibility of this target, emphasizing the challenges of taxing sectors like agriculture, which is a significant but poorly organized sector of the economy. Additionally, he cautioned that current revenue-generating initiatives, while positive, may not be sufficient to address Nigeria's fiscal challenges. Debt servicing has become a growing concern for Nigeria, with reports indicating that the country spent $1.09 billion on debt service in the first nine months of the year. Akpata clarified that this figure likely pertains to foreign currency debt service, which forms a fraction of Nigeria's total debt obligations. Despite efforts to manage debt and enhance revenue generation, Nigeria continues to grapple with the impact of high debt servicing costs on its budget. In conclusion, Nigeria's debt management strategy faces complexities due to the need for sustainable revenue generation and prudent borrowing practices. While the IMF's recommendations could provide valuable insights, Nigeria must strike a balance between borrowing for essential expenditures and bolstering domestic revenue sources. Achieving the goal of reducing reliance on oil revenues and diversifying the economy will require innovative policy measures and effective implementation to steer the country towards fiscal stability.