*Approves new debt management strategy for 2016-2019

By Levinus Nwabughiogu

ABUJA – To reflate the nation’s ailing economy, Federal Executive Council, yesterday, gave approval for external borrowing for the period of three years, starting this year.

The council also approved the review of debt management strategy for the same period.

Minister of Finance, Mrs. Kemi Adeosun, made the disclosure while briefing State House correspondents at the end of the FEC meeting at the Presidential Villa, Abuja.

Flanked by the Minister of State for Budget and National Planning, Mrs. Zainab Ahmed, at the briefing, Adeosun justified the decision, saying it was necessary to stimulate the private sector and financial institutions as well.

File: Minister of Finance, Mrs. Kemi Adeosun, at the Federal Executive Council Meeting at the Council Chambers in Abuja

She said: “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. And also the government recognizes that there is need to stimulate the private sector.

‘’For the private sector to really grow, banks must lend to it, so we don’t want government borrowing crowding out the private sector.

Strategic decision
“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.

“While approving it, FEC suggested some guidelines which were that as we are moving more of our debt to dollars, we need to focus more on exports, especially non oil exports and discussions were held around how to make exporting easier.

‘’There was a lot of discussions around reforms that we would be needing in Customs and other ministries to make it easier to export Nigerian goods and agricultural produce and solid minerals for which there is demand at the moment.

“Some of the bottle necks that exist in customs and those under quarantine need to be removed. If we do this, that would create foreign exchange earnings so that these borrowings which are in dollars when they need to be repaid, we would have dollar revenues to pay for them.”

New debt management strategy between 2016-2019

The Minister also disclosed that the council approved a debt management strategy for the years 2016-2019.

According to her, the previous one, which spanned between 2012 when it was started and 2015, had expired.

She added that the policy would also help in the economic diversification of the country.

“Today, I presented a memo to the FEC which was approved for the debt management strategy for the years 2016-2019. Nigeria started producing debt management strategy in the year 2012 and the three-year debt management programme along with the previous ones had expired December 2015 and there was a need for a new one.

‘’There was need for a new one for two reasons. One was that the previous one had expired but two given the current economic challenges and then the economic circus of this government to reflate and diversify the economy, we felt there was need for a new debt strategy.

“So, the debt strategy to be used is based on medium term expenditure framework as you know was prepared and presented by the Ministry of Budget and National Planning and that MTEF assumed that we would reduce our domestic debt from one percent of GDP to 0.7 per cent by 2019.

‘’The reasons for this is that the government recognizes the need within the next three years to really stimulate this economy and provide the infrastructure that we need,” she said.

Multilateral loans to be restructured for Nigeria’s benefit
Adeosun also hinted that Nigeria would restructure its multilateral loans from the World Bank and African Development Bank, ADB, to benefit Nigerians.

She said: “The other issue is that there was a long discussion about multilateral loans which are loans from agencies like the World Bank, African Development Bank and so on.”

“Ministers have raised concern that some of the previous agreements that Nigerian government entered into were not optimal and cabinet agreed that these are not grants but loans and therefore Nigeria should be confident enough to negotiate with some of these multilateral agencies to make sure that those loans we take either from the world bank or ADB are on terms that are advantageous to Nigerians.

“FEC unanimously supported us and mandated the Ministry 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 sinking 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.”

Debt management strategy in line with MTEF—Ahmed

Also speaking, the Minister of State for Budget and National Planning, Mrs Zainab Ahmed, emphasized that new strategy was in line with the Medium Term Expenditure Framework, MTEF.

“I need to empathize that the importance of this strategy is that there is a debt strategy that aligns with the MTEF and it is important for us to do this 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 is that the financial system will have more resources to lend to the real sector, 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 stressed.