By Ifeanyi Omokwe
“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,” he said.
“And therefore taking into account that external financing sources are on the average cheaper than domestic sources, 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 per cent domestic and 16 per cent external to 60 per cent domestic and 40 per cent external.
The Director-General of West African Institute for Financial and Economic Management (WAIFEM), Prof. Akpan Ekpo, agreed with Dr. Nwankwo, explaining that budgetary allocations alone may be inadequate to finance the infrastructure deficit with dwindling oil revenue. Prof. Ekpo described the debt option as the most viable, pointing out that Nigeria’s rebased GDP economy has given it the leeway to borrow more to bridge infrastructure gap. To him, the DMO had, in the past, demonstrated good negotiation skills in dealing with the country’s debt matters, either with internal or external creditors, saying that it will not be out of order for the government to borrow from the World Bank or the AfDB to fund the key developmental projects.
Government can also borrow internally to achieve the feat, he said, even as he disclosed that internal borrowing is always short-term while external borrowing has longer tenor. Ekpo said the DMO has the capacity and constitutional role to advise the government on the available choices. “The World Bank rates are cheaper with longer repayment term. The DMO can also leverage on the Nigeria Trust Fund with the AfDB to get a better deal on the loans needed to fund developmental projects” , he said.
Head of Macroeconomic & Fixed Income Research, FBNQuest, Gregory Kronsten, hinted that crude oil price will end the year on a low note. He said although the oil price has picked up from its recent floor in January and the budget assumption of $38/barrel has started to look conservative, but the global supply/demand balance for crude is set to remain low until late next year. The thinking is that despite the marginal recovery in crude oil prices, borrowing is still needed because oil will remain low for a long time and may even crash below $40 in the face of production politics. A Currencies Analyst with Ecobank Nigeria, Olakunle Ezun, said the DMO works closely with the Federal Government to manage the national debts. He said although funds from the domestic bond market are more expensive than the international bond market, investing in the local bond market is also in the best interest of the economy.
The FGN Bonds, he added, helps the government in the funding of its deficits in a non-inflationary manner while providing benchmark yield-curve for pricing other securities/bonds. It also engenders rational management of government’s fiscal and monetary operations. He said that if the debts are well spent, they will help to boost liquidity in the economy and investment in key sectors like agriculture and mining, among others.
A report by FBNQuest titled: ‘A planned pick-up in FGN external borrowing’, said: “The DMO has set a medium-term target of a 60/40 blend for the FGN’s domestic and external obligations in its Debt Management Strategy, 2016 to 2019. The blend as at end-2015 was 84/16. The target is unchanged from the previous strategy for 2012-15, and is driven by relative servicing costs and the DMO’s determination not to crowd out the private sector”. President Buhari had earlier in the year announced a N6.1 trillion spending plan for this year to stimulate the economy. According to him, the government has a plan to raise about $5 billion from Eurobond market and multinational and bilateral lenders.
In June, Finance Minister, Mrs. Kemi Adeosun, had told bond investors in London that Nigeria was close to securing about $3 billion facility from World Bank and AfDB. According to Mrs. Adeosun, the loans will come from the World Bank, AfDB, China Exim Bank, and other development agencies like the Japanese International Cooperation Agency (JICA). She said the plan to borrow externally was in line with government’s strategy to focus on concessional debts, low-cost loans, particularly from multinational agencies.
The loans are to come with average interest rates of 1.25 per cent, between four to seven year moratorium and 20-year repayment schedule. The minister said the loans will be disbursed for the development of strategic sectors which government believes will help to revive the economy. She listed power and agriculture as the sectors that will get significant chunks of the loans to take care of projects, especially those militating against efficient power generation and transmission.
The Senate has equally called for more advocacy on debt management and servicing to enable Nigerians understand the benefits and impact of government’s plans to raise funds from the capital and bonds’ market for development purposes. The Chairman, Senate Committee on Local and Foreign Debts, Senator Shehu Sani, spoke during a three-day retreat organised for members of the committee by the DMO in Minna, Niger State.
Sani said if there was aggressive advocacy on what such debts were taken for, Nigerians would support such initiative aimed at driving development. According to him, it was imperative for the DMO to develop a framework in the major languages in the country to get the citizens to understand why debts are taken, for what purpose and what the society stands to benefit from such borrowing.
He said: “There is need for a strategy mix anchored on proper advocacy on what debt management is all about.
Concluded
Omokwe writes from Abuja.