Advocates zero-coupon bonds to moderate debt service cost
By Babajide Komolafe
FSDH Merchant Bank has advocated issuance of project specific zero-coupon bonds to minimise interest expense on federal government’s debt.
The bank stated this in the June edition of its monthly economic and financial markets outlook, entitled, ‘Economy in need of boosters: Priorities for a second-term.’
Speaking at the media presentation of the report, Head of Research, FSDH Merchant Bank, Akinwunmi Ayodele, said: “In order to manage the high interest expenses on the debt of the federal government relative to its current revenue, it should consider issuance of zero-coupon bonds. Such bonds and other bond issues going forward, should be tied to specific projects that have economic value addition to the country. And there should be a mechanism to assess that debt contracted is used for intended projects.”
He highlighted 16 other measures recommended by the bank as priorities for the second term of President Muhammadu Buhari’s administration. This include prompt appointment of cabinet members, removal of subsidy, adjustment of electricity tariffs, reintroduction of tolls on federal roads, and strategies to improve quality of education and health care delivery in the country.
He said: “There are more compelling reasons now than before for the federal government to remove the petroleum subsidy and channel the money into some other social intervention programmes of the government that have direct impacts on the poor in view of the low government revenue.
“We also recommend an adjustment to the electricity tariff in order to drive investments into this critical sector of the economy. This will also accelerate the growth of small and medium scale businesses in the country that are handicapped because of epileptic power supply and the high cost of running on generator and other more expensive sources of power.
“There must be deliberate efforts and strategies to improve the quality of education and healthcare delivery in Nigeria. In addition to increasing manpower development, this will improve productivity and boost economic growth and development of the country.
“Such efforts will also help the county to conserve the foreign exchange. Available figure from the Central Bank of Nigeria shows that Nigerians spent a total of $33.04 billion between 2009 and 2018 as personal travel expenses on education and health related issues.
“This amount increased the demand pressure in the foreign exchange market. The amount could have been saved if the health and education sectors in Nigeria are well funded.”