The Federal Government has unveiled a new debt management strategy to run from 2016 – 2019 with a marginal increase in external borrowing, increased commitment to capital projects execution and long, as against short term, borrowing.
The Director General of the Debt Management Office (DMO), Dr. Abraham Nwankwo, revealed the three year debt management strategy at a press briefing on Monday in Abuja.
According to Nwankwo, the new Debt Management Strategy, approved by the Federal Executive Council last Wednesday, is aimed at economic recovery and diversification.
The DMO boss explained that the focus of the new initiative is to develop 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 limit over time.
He reiterated that the new Debt Management Strategy is in line with President Muhammadu Buhari’s vision to generate maximum employment, reduce poverty and increase the living standard of Nigerians.
Dr. Nwankwo further stated that for this to be effectively achieved, the government is making positive efforts in diversifying the economy as against the backdrop of structural collapse in oil prices and oil revenue.
“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.
“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 and long term, we will strive to remix the public debt portfolio from 84% domestic and 16% external to 60% domestic and 40% 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% and the minimum of long-term 75%.
“So we are remixing between external and domestic and we are also remixing within the domestic, between short and long-term.”
Justifying the decision to remix in favour of external debt, he said the country will be able to achieve cheaper cost of funds, lower debt servicing and avoid the risk of crowding out the private sector from accessing the domestic market, adding that the private sector is still expected to play the lead role to complement government’s effort.
While dismissing concerns on government’s decision to focus on external borrowing in a country currently facing foreign exchange constraints and harsh macroeconomic environment, he stressed that the new strategy is the best for the Nigerian economy as the government is presently making sustained efforts to diversify the economy, noting that in the next 5-7 years export proceeds accrued to the economy will be more and the exchange rate will be favourable.
While encouraging Nigerians that the future will be sustainable, the DMO boss further stated that the citizens should take advantage of the current challenges as a stepping stone to actualize their vision and achieve their dreams.
“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,” Nwankwo said.
“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, why 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 you should 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 minerals 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.
“Then you will appreciate that in the next 5-7 years with Nigerians working hard and in a focused manner there is no doubt that our exchange rate should be more favourable as the years go by and our reserve will be more buoyant.
“So thinking in term of medium to long-term as a strategy is about right, because we are not bugged down by our current decision, rather we are inspired by where we must be.”
Nwankwo was upbeat that in the next few years there will be significant improvement in employment generation, poverty reduction and living standard of the people, adding that as part of the new strategy, the DMO will develop new products particularly the federal government saving bond and also diversify the sources of raising funds domestically.