Debt-to-GDP Ratio to Hit 60% by 2027

The federal government has approved Nigeria’s medium-term debt management strategy (MTDS) for the 2024-2027 fiscal year, pegging the debt-to-gross domestic product (GDP) ratio at 60 percent.

In a statement, the Debt Management Office (DMO) said the approved MTDS would ensure debt sustainability while meeting the country’s financing needs.

According to office, the MTDS, developed with technical support from the World Bank and the International Monetary Fund (IMF), is a globally recognised tool for managing public debt.

The DMO said the framework aims to balance borrowing costs with associated risks, deepen the domestic securities market, and optimise the composition of Nigeria’s debt portfolio.

“The key objectives of the MTDS are to meet the Government’s financing needs and payment obligations in the short to medium term, taking into consideration the costs and risks trade-offs in the debt portfolio,” the organisation said.

“To achieve optimum composition of the public debt portfolio that ensures debt sustainability; and to further deepen the domestic securities market through the introduction of new products.

“The preparation of the MTDS usually involves the consideration of alternative funding strategies available to the government, as it seeks to meet its financing needs, taking into consideration the cost of borrowing and the associated risks, while ensuring debt sustainability in the medium to long-term.”

Providing details of the new benchmarks, the DMO said nominal debt as a percentage of gross domestic product (GDP) is expected to be capped at 60 percent by 2027, compared to 52.25 percent as at end-December 2024.

“Interest payments will not exceed 4.5 percent of GDP compared to 3.75 per cent in 2024, while sovereign guarantees are to remain below 5 percent of GDP, up from the 2.09 percent,” the debt office said

On the composition of the debt portfolio, the agency said the mix of domestic to external debt has been revised to “55:45, compared to 48:52 previously, while domestic borrowing will maintain at least 75 percent long-term instruments against a maximum of 25 percent short-term”

The agency said refinancing risk will be contained, with debt maturing in one year set not to exceed 15 percent of the total portfolio.

The DMO said foreign exchange (FX) debt will also be capped at 45 percent of the entire debt stock.

The agency noted that Nigeria’s average debt maturity of 11.05 years and average time to refixing of 10.74 years already exceed the minimum thresholds of 10 years set in the strategy, reflecting relative stability in the debt structure.

In 2022, the DMO said it deployed economic tools and strategies in contracting loans for the federal government to ensure debt sustainability.