FG to reduce issuance of short-term domestic debt instruments
The Federal Government plans to rebalance the domestic component of its public debt portfolio in 2019 in order to achieve longer maturity for at least 75 per cent of its domestic debt portfolio.
The Debt Management Office stated this in its Risk Analysis of the Federal Government of Nigeria’s Total Debt for 2017.
The DMO stated that the refinancing risk of the government’s debt portfolio was very high because of the presence of a large proportion of domestic debt maturing within a period of one year.
The DMO stated that as much as 32.61 per cent of Federal Government’s domestic loan portfolio was maturing within a period of one year, thereby exposing the total public debt to refinancing risk.
It added that the target for the government was to achieve a target of 20 per cent for debts maturing within a period of one year but this could not be achieved as the proportion of such debt to the total debt portfolio stood at 23.53 per cent as of December 31, 2017.
On the other hand, the DMO said that the refinancing risk for foreign debt was low because it enjoyed an Average-Time-to-Maturity of 14.26 years.
The report said, “The Average-Time-to-Maturity of the FGN’s Total Public Debt portfolio as of December 31, 2017, was 11.55 years, which was above the strategic minimum of 10 years, indicating lower exposure of the portfolio to refinancing risk.
“However, the high proportion of debts maturing within one year was 23.53 per cent, higher than the targeted maximum of 20 per cent, suggesting that the total debt portfolio was exposed to higher refinancing risk.
“While refinancing risk was low for external debt portfolio with ATM (Average-Time-to-Maturity) of 14.26 years, it was very high for domestic debt with ATM of 7.78 years and debt maturing in one year at 32.61 per cent.
“This was attributed to the presence of high proportion of short-term debt in the domestic debt portfolio.
“Part of the debt management strategy of gradually reducing the issuance of short-term debt instruments would be helpful in mitigating the risk and contribute in attaining the strategic target of 75:25 ratio for long to short-term debts in the domestic debt portfolio by the end of the year 2019.”
Another part of the debt management strategy is the target to achieve a rebalancing of foreign debt portfolio of 40 per cent and a local debt proportion of 60 per cent in 2019.
As of June 30, 2018, the foreign debt component of the total public debt stood at about 30 per cent while the domestic debt component stood at about 70 per cent.