In a move aimed at ensuring sustainable borrowing practices amid economic volatility, Nigeria's Debt Management Office (DMO) has introduced the Medium-Term Debt Management Strategy (MTDS) for 2024-2027. This framework replaces the previous 2020-2023 plan and seeks to align government borrowing with broader macroeconomic goals, keeping debt costs and risks at manageable levels.
The MTDS serves as a key tool in public debt management, integrating borrowing decisions with a country's economic framework to prevent unsustainable debt burdens. As of the end of the first quarter of 2025, Nigeria's total public debt stood at N149.39 trillion, equivalent to about $97.32 billion. This figure comprises N78.76 trillion in domestic debt and N70.63 trillion in external debt. While government officials maintain that these levels remain within acceptable thresholds, financial experts have voiced apprehensions about the rapid accumulation of debt, warning that it could strain fiscal stability if not carefully monitored.
Developed every four years by the DMO in collaboration with various federal ministries, departments, and agencies, the MTDS draws on technical expertise from international bodies like the World Bank and the International Monetary Fund. The DMO highlighted in a recent statement on its website that adopting such a strategy aligns with global best practices in debt management. The formulation process involved evaluating multiple borrowing scenarios to identify the most effective approach that fulfills the government's financing requirements while minimizing costs and risks.
This latest MTDS focuses primarily on federal government debts, including external borrowings by sub-national entities, but excludes their domestic debts. It also accounts for explicit contingent liabilities of the federal government, providing a comprehensive view of potential financial obligations. Initially drafted using projections from the 2024-2026 Medium-Term Expenditure Framework (MTEF) with 2023 as the baseline, the strategy was revised due to unpredictable economic conditions, particularly sharp fluctuations in the exchange rate. The DMO explained that these changes rendered earlier assumptions outdated, prompting an update based on the approved 2025-2027 MTEF and the 2025 Appropriation Act to better mirror current realities.
Reflecting on the outcomes of the prior MTDS (2020-2023), the DMO reported mixed but generally positive results in key performance indicators. For instance, the total public debt-to-GDP ratio reached 40.57% by the end of 2023 and climbed to 52.25% by December 2024. Although this surpassed Nigeria's self-imposed target of 40%, it stayed below the 70% threshold outlined in the International Monetary Fund's Market-Access Country-Debt Sustainability Framework (MAC-DSF) for countries like Nigeria, which also matches the Economic Community of West African States (ECOWAS) convergence criterion.
The rise in the debt-to-GDP ratio—from 19% in 2019 to these higher levels—stems from increased new borrowings, the issuance of promissory notes, and the incorporation of N30 trillion in Ways and Means Advances from the Central Bank of Nigeria into the federal domestic debt stock. On a brighter note, other metrics showed resilience: The average time to maturity (ATM) for debts was 12.77 years in 2023 and 11.05 years in 2024, exceeding the minimum target of 10 years. Debt maturing within one year accounted for 10.44% and 13.91% of total debt in those years, well under the 20% cap. Additionally, the ratio of long-term to short-term domestic debt was 88:12 in 2023 and 82:18 in 2024, outperforming the goal of at least 75:25.
The DMO emphasized that these achievements indicate the previous strategy was largely successful in meeting or exceeding its targets. For the new MTDS, adjustments were made to initial assumptions, such as discarding the USD1/N800 exchange rate from the 2024 Appropriation Act in favor of more realistic figures—the rate ended 2024 at USD1/N1,535.32. Updated 2024 data and projections from the 2025-2027 MTEF and Fiscal Strategy Paper informed the forward-looking elements.
Looking ahead, the MTEF anticipates real GDP growth of 4.6% in 2025, dipping slightly to 4.4% in 2026 before accelerating to 5.5% in 2027. These projections hinge on boosted investments in infrastructure, agriculture, and social services. Inflation is expected to ease gradually, reaching 10.04% by 2027, supported by ongoing fiscal and monetary policies. Despite a recent re-composition of the inflation basket in January 2025, the DMO noted that investors would continue to demand real positive returns on investments.
To test the strategy's robustness, interest rates were stress-tested with moderate shocks of 150 basis points for baseline scenarios and 300 basis points for extreme ones across various maturities. Yields on Nigeria's Eurobonds were pegged to U.S. Treasury benchmarks plus market-driven spreads at the time of projection. Alternative borrowing strategies were crafted around the government's funding needs, incorporating both domestic and external sources. This includes innovative instruments like the Domestic FGN US Dollar Bond launched in September 2024 and potential future introductions of Environmental, Social, and Governance (ESG)-compliant securities, contingent on favorable market conditions.
Overall, the MTDS 2024-2027 represents a proactive step toward fiscal prudence, balancing the imperatives of economic growth with the realities of a challenging global and domestic environment. By refining its approach based on past performance and current data, the Nigerian government aims to maintain debt sustainability while funding essential development priorities. As economic conditions evolve, ongoing monitoring and adjustments will be crucial to realizing these objectives.