FG approves new debt management strategy

Minister of Finance, Mrs. Kemi Adeosun

The Federal Government has resolved to adopt more of externally borrowing to achieve its aim of stimulating the economy and providing the infrastructure that the nation needs.

This was one of the decisions reached at a meeting of the Federal Executive Council held on Wednesday during which a new Debt Management Strategy was approved for the country.

The Minister of Information and Culture, Alhaji Lai Mohammed; Minister of Finance, Kemi Adeosun; and the Minister of State, Budget and National Planning, Zainab Ahmed, briefed State House correspondents at the end of the meeting presided over by Vice-President Yemi Osinbajo.

President Muhammadu Buhari is currently away in London on a 10-day vacation.

Adeosun said the government decided to produce a new debt management strategy for 2016 to 2019 because the previous one had expired in December 2015 and there was a need for a new one.

She said the document was also produced given the current economic challenges and then the economic circus of the government to reflate and diversify the economy.

She explained that the government would be embracing external borrowings because they are more cost effective and they come with more beneficial terms.

She said, “We felt there was a need for a new debt management strategy and the strategy is based on the Medium Term Expenditure Framework as prepared and presented by the Ministry of Budget and National Planning.

“That MTEF assumed that we would reduce our domestic debt from one percent of GDP to 0.7 percent by 2019.

“The reason for this is that the government recognises that for the next three years, to really stimulate this economy and to provide the infrastructure that we need, we would need to be borrowing.

“We need to borrow at the most cost-effective rate and at the most cost-effective and beneficial terms.

“The government recognises that there is a need to stimulate the private sector. For the private sector to really grow. banks must lend to the private sector so we don’t want government borrowing crowding out the private sector.

“Government had taken a strategic decision that, where possible, we would borrow more externally. That is the external debts in dollars or in any other currencies because the interest rates are cheaper, the tenures are longer and there is more room for banks to lend to the private sector especially SMEs. So the strategy was approved by FEC after much debate.”

The minister said in approving it, the council noted that as the nation moves its debts to dollars, there is need to focus more on exports especially non-oil exports.

She said discussion was held on reforms that would be carried out  in Customs and other ministries to make it easier to export Nigerian agricultural produce and solid minerals.

The aim, she explained, is to remove some of the bottlenecks that exist in Customs and those under quarantine.

In doing that, she said the government would create foreign exchange earnings so that it would have dollar revenues to pay the borrowings which are in dollars when they need to be repaid.

Adeosun said the council also held discussion about multilateral loans from agencies like the World Bank and the African Development Bank.

She said ministers had raised concerns that some of the previous  agreements that Nigerian government entered into were not optimal.

She said the council resolved that since they are not grants but loans, Nigeria should be confident enough to negotiate with some of the multilateral agencies to make sure that those loans the country takes either from the World Bank or ADB are on terms that are advantageous to Nigerians.

“FEC unanimously supported us and mandated the Mnistry of Finance which is the main negotiator that henceforth such loans will need to be structured so that they benefit Nigerians.

“We also agreed that there will be new instrument in the domestic market, particularly Sukuuk bonds,  infrastructure bonds and inflation linked bonds to deepen the domestic market and create greater opportunity in the domestic market.

“This strategy would govern how we manage our borrowings for the next three years. FEC made it very clear that we must make sure that our costs are low and manage the foreign exchange risks.

“They agreed that it is cheaper to borrow externally but we must manage the risk involved,” she concluded.

Ahmed on her part said it was important for the country to move away from short term borrowing to longer term borrowing and to move away government borrowing from the domestic market as much as possible to cheaper external loans.

The purpose of that, she said,  was that the financial system would have more resources to lend to the real sector which is the productive sector.

“The MTEF has a plan to reduce the level of debt from what it is in 2016 to 25% in the next three years and that is what this plan is really conforming to,” she explained.