In a strategic move aimed at bolstering economic stability amid global uncertainties, the federal government has greenlit a comprehensive Medium-Term Debt Management Strategy (MTDS) for the period spanning 2024 to 2027.
The plan, which sets a firm ceiling on the nation’s debt-to-GDP ratio at 60% by the end of 2027, reflects a deliberate effort to balance borrowing needs with long-term sustainability, drawing on expertise from international heavyweights like the World Bank and the International Monetary Fund (IMF).
At its core, the MTDS is more than a fiscal blueprint—it’s a roadmap designed to navigate Nigeria through the choppy waters of debt accumulation while minimizing risks and costs. “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,” explained the Debt Management Office (DMO) in an official statement.
This approach, the DMO emphasized, seeks to strike a delicate equilibrium between affordable borrowing and prudent risk management, all while fostering a deeper domestic securities market and refining the overall composition of Nigeria’s debt.
The strategy comes at a pivotal time for Africa’s most populous nation, which has grappled with rising debt levels exacerbated by external shocks like the COVID-19 pandemic, fluctuating oil prices, and currency devaluations. As of December 2024, Nigeria’s nominal debt stood at 52.25% of GDP—a figure projected to rise but remain capped at 60% by 2027 under the new framework. This controlled escalation is intended to provide fiscal breathing room without tipping into unsustainable territory.
Delving deeper, the MTDS outlines specific guardrails to keep debt dynamics in check. Interest payments, for instance, are not to exceed 4.5% of GDP, up from 3.75% in 2024, ensuring that servicing costs don’t overwhelm the budget. Sovereign guarantees—essentially government-backed assurances for loans—will be held below 5% of GDP, building on the current level of 2.09%. These thresholds underscore a commitment to fiscal discipline, preventing the kind of debt spirals that have plagued other emerging economies.
A notable shift in the debt portfolio’s makeup highlights Nigeria’s pivot toward greater self-reliance. The domestic-to-external debt ratio has been recalibrated to 55:45, reversing the previous 48:52 split that leaned more heavily on foreign borrowing. This adjustment aims to reduce vulnerability to exchange rate fluctuations and global interest rate hikes.
Within the domestic sphere, at least 75% of new borrowing will come from long-term instruments, with short-term debt limited to a maximum of 25%. Additionally, no more than 15% of the total debt portfolio can mature within a single year, mitigating refinancing risks.
On the external front, foreign exchange (FX) debt is capped at 45% of the total, a measure to shield the economy from currency volatility. The DMO points to existing strengths in Nigeria’s debt structure as a foundation for this strategy: the average debt maturity currently sits at 11.05 years, with an average time to refixing of 10.74 years—both surpassing the minimum 10-year thresholds set by the plan. These metrics signal a relatively stable base from which to build.
The roots of this proactive stance trace back to lessons learned in recent years. In 2022, the DMO deployed a suite of economic tools and strategies to secure loans for the federal government, prioritizing sustainability from the outset. This forward-thinking mindset, now formalized in the MTDS, positions Nigeria to not only meet immediate financing demands but also to cultivate a more resilient financial ecosystem.
