The Federal Government, yesterday, unveiled a new debt management strategy to run for three years from 2016 to 2019 with a marginal increase in external borrowing, increased commitment to capital projects execution and long term borrowing as against short term.
A major element of the strategy is that over the medium term, there will be a remix in the public debt portfolio from 84 percent domestic and 16 percent external to 60 percent domestic and 40 percent external.
Director General of the Debt Management Office (DMO), Dr. Abraham Nwankwo, who disclosed this in Abuja, said the three year debt management strategy was approved by the Federal Executive Council last week, and is aimed at economic recovery and diversification.
Nwankwo said the new initiative is aimed at developing a debt management strategy that would ensure that in the face of macroeconomic and other financial constraints, the cost and risk profile of the public debt portfolio remains within acceptable limits over time.
He said the strategy in alignment with the federal government’s vision to generate maximum employment, reduce poverty and increase the living standard of Nigerians.
“The debt management strategy we are going to pursue over the next four years takes into account the fact that for now Nigeria’s public debt portfolio is dominated by domestic debt.
After the Paris and London Club exits between 2004 and 2006, the country took a deliberate decision to develop its domestic bond market and to do most of the public borrowing from domestic sources so as to develop the domestic bond market, that objective has been sufficiently achieved. Therefore taking into account that external financing sources are on the average cheaper than domestic sources,” he said.
It becomes more necessary to slant more of the borrowing in favour of external sources. Therefore one of the major elements of this strategy is that over the medium, term we will strive to remix the public debt portfolio from 84 percent domestic and 16 percent external to 60 percent domestic and 40 percent external.
In addition taking into account other factors, the fact that over the next four years public borrowing proceeds will be devoted to capital expenditure, an element of the strategy is to ensure that we remix the current status of about 31 percent short-term and 69 percent long-term to a maximum of short-term 25 percent and the minimum of long-term 75 percent. So we are remixing between external and domestic and we are also remixing within the domestic, between short and long-term,” he stated.
The DMO boss said the remix in favour of external debt will enable the country to achieve cheaper cost of funds, lower debt servicing and avoid the risk of crowding out the private sector from accessing the domestic market. He added that the private sector is still expected to play the lead role to compliment government’s effort. According to him, the new strategy is the best for the Nigerian economy as the government is presently making sustained efforts on diversifying the economy, noting that in the next 5 to 7 years, export proceeds accruing to the economy will be more and our exchange rate will be favourable.
“One of the questions that will naturally arise and which many of you have asked us, has to do with the challenge of foreign exchange constraints. At this point in time our exchange rate is not very favourable and our reserves are not as buoyant as they used to be and people are raising the question while would you go for external borrowing when you have foreign exchange constraints. However a closer look at the issue shows that the strategy the government has chosen is still the optimum strategy and the secret to arriving at that conclusion is simply to differentiate between a short-term static situation and a long-term dynamic situation. Of course if we are simply focused on the challenges we have currently there will be undue concerns about our ability to service external debt, however if you take into account that everything we are doing now are for the purpose of diversifying our economy in a sustained manner, so that in the next 5-7 years we will be exporting a variety of processed and primary products.
“We have all it takes in terms of variety of opportunities in agriculture and in solid mineral for example. The efforts being made by the government and private sector is to ensure that many of the products we now import will be provided locally, such as rice, sugar, flower, wheat, fruit juice, we can produce in abundance to satisfy our domestic needs and also have surplus to export,” Nwankwo said.
Culled from Vanguard