NewsBe Wary Of Debt Risks – Cardoso Warns Nigeria, Other Emerging Economies

Be Wary Of Debt Risks – Cardoso Warns Nigeria, Other Emerging Economies

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March 05, (THE WILL)- The Governor of the Central Bank of Nigeria, Olayemi Cardoso, has warned emerging economies, including Nigeria to be wary of debt risks, which he said could hamper economic growth if left unchecked.

THEWILL reports that Nigeria is shouldering a combined debt burden (external and domestic) of N87.91trn as of the third quarter of 2023. The Debt Management Office (DMO), in December 2023, put external debt at N31.98trn and domestic debt at N55.93trn.

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Speaking on Monday in Abuja, when he declared open a World Bank, International Monetary Fund (IMF) and West Africa Institute for Financial and Economic Management (WAIFEM) regional training on Medium Term Debt Strategy ( MTDS) for Debt, Cardoso said Nigeria’s situation is stable and not a pathetic one despite the near-term risks attributed to unfavourable global market conditions and increased debt burden occasioned by the COVID-19 pandemic.

He said a recent sovereign stress risk on Nigeria by the World Bank and International Monetary Fund (IMF) rated Nigeria moderate in terms of overall sovereign stress.

Represented by Dr. Mohammed Musa Tumala, the Director of the Monetary Policy Department, Cardoso said the primary goals of Nigeria’s MTDS are “to ensure borrowing activities are conducted within sustainable levels, to optimise the debt portfolio for cost and risk, and to improve debt management capabilities”.

On Nigeria’s experience in relation to MTDS, the apex bank chief said Nigeria, like other developing and emerging nations, her experience with MTDS was a significant aspect of its broader medium-term economic management and fiscal policy framework. He said MTDS always guided its debt management activities, the most recent being the MTDS 2020-2023.

“The country has periodically developed and updated its MTDS to reflect changing economic conditions, funding needs, and the global financial environment. The primary goals of Nigeria’s MTDS have been to ensure that borrowing activities are conducted within sustainable levels, to optimise the debt portfolio for cost and risk, and to improve debt management capabilities.

“The strategy aims to diversify funding sources through domestic and international borrowings, including issuing sovereign bonds. It focuses on extending debt maturities from 10 to 30 years in domestic and international markets to lower refinancing risks and pressure on domestic markets. It also seeks to sustain debt by considering economic growth, revenue capabilities, and exchange rate fluctuations. This strategy is notably the most cost-effective among the three options, primarily due to its reduced reliance on external borrowing, which lowers exposure to currency risk.

“While significant progress has been made in implementing the strategy, ongoing challenges related to exchange rate volatility, inadequate revenue generation, and external shocks, such as oil price volatility, would necessitate continuous refining of the MTDS to address these challenges and leveraging opportunities.

“Nigeria is currently assessed to be at a “moderate” overall risk of sovereign stress. This assessment is crucial in understanding the effectiveness and challenges of Nigeria’s MTDS.

“Nigeria’s situation is stable despite the near-term risks attributed to unfavourable global market conditions and the increased debt burden since the pandemic. Significantly, the external debt-to-GDP ratio is a manageable 9, indicating cautious external borrowing.

“Most (85%) of its debt has medium to long-term maturities, and compared to the emerging and developing economies’ average of 50% GDP, Nigeria’s debt level at 37% GDP shows it’s in a relatively favourable position regarding debt sustainability,” he said.

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