FG Approves New Debt Strategy: What it Means for Nigerian Economy.

The Federal Government has approved Nigeria’s Medium-Term Debt Management Strategy (MTDS) for 2024-2027, setting a debt-to-GDP ratio ceiling of 60% by 2027.

According to the Debt Management Office (DMO), this strategy aims to ensure debt sustainability while meeting the country’s financing needs.

The debt-to-GDP ratio is expected to increase from 52.25 percent at the end of 2024 to 60 percent by 2027. Interest payments will be capped at 4.5 percent of GDP, up from 3.75 percent in 2024. Sovereign guarantees will remain below 5 percent of GDP, increasing from 2.09 percent.

The domestic-to-external debt mix will shift to 55:45 from 48:52, with domestic borrowing focusing on long-term instruments (at least 75 percent). Debt maturing within one year will not exceed 15 percent of the total portfolio, and foreign exchange debt will be capped at 45 percent of the total debt stock.

The DMO developed the MTDS with technical support from the World Bank and the International Monetary Fund (IMF), aligning with global best practices for public debt management. The strategy aims to balance borrowing costs with associated risks, deepen the domestic securities market, and optimize Nigeria’s debt composition.

The strategy seeks to meet government financing needs and payment obligations in the short to medium term, achieve an optimum composition of the public debt portfolio that ensures debt sustainability, and deepen the domestic securities market through new products.

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Some analysts believe the success of the MTDS will depend on the government’s ability to manage debt effectively, prioritize productive investments, and ensure fiscal discipline. Others caution that the increased debt burden and higher interest payments could strain fiscal stability and limit the government’s ability to respond to economic shocks.

With Nigeria’s average debt maturity of 11.05 years and average time to refixing of 10.74 years already exceeding the minimum thresholds, the DMO is confident in the country’s relative stability in debt structure.