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DMO Faults LCCI On Debt Service-to-revenue Ratio

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The Debt Management Office (DMO) has faulted the claim by the Lagos Chamber of Commerce and Industry (LCCI) recently where the chamber stated that staying within the current debt-to-GDP threshold is an unreliable means of calibrating Nigeria’s current debt burden.

The chamber had in the report asked the federal government to review its borrowing parameters on the basis of the country’s debt-to-revenue ratio, which it said currently calls for concerns.

But in a reaction to LCCI, the DMO said while it agrees with LCCI that measures should be taken to increase revenues, the chamber ought to know that the primary reason for the high debt service-to-revenue ratio is because Nigeria’s revenue base is low.

The debt office said apart from that, government is largely dependent on the sale of crude oil as a major revenue source. “If Nigeria, with a Revenue-to-GDP Ratio of 9%, generated revenues close to countries such as Kenya, Ghana and Angola with Revenue-to-GDP Ratios of 16.6%, 12.5% and 20.9% respectively, then, its Debt Service-to-Revenue would be lower,” the DMO said in the response to LCCI.

The DMO stressed the fact that the highlighted countries have higher public debt-to-GDP ratios (Kenya: 67.6%, Ghana: 78.9% and Angola: 136.5%) compared to Nigeria (22.80%), yet record relatively lower Debt Service to Revenue Ratios due to their higher Revenue-to-GDP Ratios.

The debt office underscored the fact that infrastructure development, job creation and economic growth in the face of relatively low revenues, requires the government to borrow, at least in the short term. “Due to the low revenue base, the FGN is already implementing measures to increase and diversify revenues and subsequently, lower Debt Service-to-Revenue Ratio. Among these initiatives are the Strategic Revenue Growth Initiative (SRGI) and the annual Finance Acts.”

To reduce the level of direct borrowing, DMO said government also actively engages the private sector to participate in infrastructure development through various initiatives such as the Infrastructure for Tax Credit Scheme, the establishment of the Infrastructure Corporation of Nigeria Limited and other Public-Private Partnership arrangements that are guaranteed by the Government.

“We agree with the LCCI, that measures to increase revenues should be initiated by the public sector. In addition, organisations such as the LCCI are encouraged to support the Government in its revenue growth drive, which will subsequently reduce the Debt Service-to-Revenue Ratio,” the statement added.

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