BY MICHAEL EBOH
The Federal Government of Nigeria has been warned to exercise restraint in the floating of Sovereign debt instruments, ensuring that the bonds do not lead to the escalation of the rising debt profile of the country.
He further advised the government to ensure that the Sovereign Wealth Fund and the sovereign debt instruments begin their investment activities in equities in the Nigerian capital market.
Speaking at a monthly forum organized by Finance Correspondents Association of Nigeria, FICAN, Mr. Victor Ogiemwonyi, Managing Director, Partnership Investment Plc said Nigeria’s rising debt profile poses a serious threat to the economy, especially when viewed against the on-going crisis in Europe and the global financial landscape.
According to him, high public debt is not really a problem for a country, especially when the funds are tied to ventures and activities that can lead to its repayment, but huge debt burden poses a number of challenges for the economy, in the sense that the economy might not be able to withstand any significant shock.
He said, “Nigeria should be careful how it builds it own debt, especially with the country’s sovereign debt programme. This is in light of recent developments in Euro zone countries, advanced countries and the global economy in general. “The situation in Europe should be a pointer as to why we should be careful in building our own debt profile.”
He further stated that increased government borrowing will lead to a crowding out of the real sector of the economy from the bond market and consequently hamper the growth and development of the economy.
Ogiemwonyi added that it has become expedient for the country to cut down on its borrowings because of the huge cost associated with it, especially in the area of area of debt servicing.
He said debt servicing is a burden and expenses that will erode government’s revenue and hamper economic development.
On ensuring that the sovereign wealth fund invests in local equities, Ogiemwonyi said this will help in bringing about the much needed deepening of the market.
He said the Sovereign Wealth Fund, because of its long term nature, is appropriate for investing in equities in the Nigerian Stock Exchange, especially with the low value and inherent opportunities in majority of the quoted companies.
According to him, the Sovereign Wealth Fund should make its first investment in Nigeria because of its long term nature. “The fund should be used to buy up equities in Nigeria instead of investing the fund outside the country.
He expressed optimism of a recovery in the Nigerian capital market in the current year, going by developments in the local and global economy.
Factors that will drive the recovery of the market in the year, he said, include the successful reorganization of the Nigerian Stock Exchange, NSE, which saw the appointment of a new chief executive; proposed deregulation of the petroleum sector; successful resolution of the country’s energy crisis; tackling of the issues of insecurity and the successful privatization of a number of public companies.