FG’s Debt Management Strategy Working, Adeosun Says

Mrs Kemi Adeosun, Minister of Finance has lauded the “excellent job” done by the Federal Ministry of Finance and the Debt Management Office (DMO) towards the management of the nation’s debt profile.

Adeosun, in a statement on Sunday, applauded the achievements the government has made since the introduction of the strategy in 2016.

She emphasized that the country’s borrowing cost, which was about 18 percent has reduced to 13 percent.

Our debt management strategy, focusing on bringing down borrowing costs, is working. This time last year, @AsoRock was borrowing at an average cost of about 18 per cent, today it is 13 per cent. We will continue to work very hard on debt service cost. https://t.co/8FCoSgRn9K

— Kemi Adeosun (@HMKemiAdeosun) May 13, 2018

The Debt Management Strategy (2016-2019), was introduced to move the Nigerian economy to a position of diversified exports and public revenue, maximum domestic satisfaction of aggregate demand and self-sustainability.

The DMO explained that the strategy was intended to keep money in the hands of private investors in order to spearhead a private sector driven economy.

Other objectives of this strategy, according to the DMO, are to free up space in the domestic market for other borrowers and achieve a more sustainable debt portfolio mix of 60 per cent domestic and 40 per cent external.

In addition, the redemption overtime will help reduce the refinancing risk associated with short-term borrowings through NTBs with tenors of 91, 182 and 365 days.

It further explained that this strategy of enabling the private sector access funds possibly at a lower cost than was hitherto possible is consistent with the government’s policy of a private-sector led growth.

In February 2018, the DMO announced plans to use the external financing of $2.50 billion to rebalance the Federal Government’s debt portfolio.

In a statement made available to THE WHISTLER, the debt office says the development which is in line with Nigeria’s Debt Management Strategy, will see an increase in external borrowing and a reduction in domestic borrowing.

The DMO explained that it has a target of rebalancing the country’s debt portfolio from the current position of about 25:75 ratio for external to domestic debt to 40:60, respectively.

As at last year, Nigeria’s domestic debts- which have double digit yields, made up 78% of the country’s debt profile based on 2017 analysis. Foreign debts, which go as high as 7.5%, constituted just 22%.

The Office was quick to point out that the financing of the $2.50 billion will not lead to an increase in the country’s public debt stock.

“The purpose is to rebalance the Federal Government’s debt portfolio by increasing the external component while reducing the domestic component in line with Nigeria’s Debt Management Strategy, which has a target of a 40:60 ratio for external to domestic debt from the current position of about 25:75, respectively,” the statement reads.

“This translates to savings for Government on new borrowings, reduction of pressure on lending rates in the economy with positive impact on job creation and poverty reduction.

“The debt substitution will also help to lengthen the maturity profile of the portfolio and leave more borrowing space for the private sector to access credit to grow the real sector, including export which will increase the foreign exchange earning capacity of the economy.”

As at March 2018, data from the DMO showed a downward trend in the domestic costs of borrowing. The percentage paid on securities reduced by estimates of 650 base points for treasury bills, with 364 day maturity and 250 base points or 2.5% for bonds issued on July 21st 2017.

The drop is catalysed by the government’s efforts to restructure its debts.

Experts had raised concerns that the strategy, if not well-managed could push down yields and trigger a fall in the value of the naira.

One of the concerns raised was that government did not use its external borrowings productively, as there are indication that a sizeable proportion in flow of foreign loans was used for purposes other than what the loans were taken for.

But the government had over time stressed that the proceeds from borrowing will be used for capital projects.

Recall that shortly after the successful listing of the first sovereign Federal Government N100 billion Sukuk bond, the Director-General, DMO, Patience Oniha, said the seven-year bond at 16.47 per cent due by 2024, will be aimed at tackling infrastructural development.

While assuring all parties that the funds would be utilised judiciously, Oniha said the Sukuk Bond was an infrastructure bond invested for the future.

She said DMO had commenced inspection of the various projects earmarked for the fund.

Days later, Adeosun handed the N100 billion proceeds cheque to the Minister of Power, Works and Housing, Babatunde Fashola, which was expected to be used on 25 key economic road projects of the Federal Ministry of Power, Works and Housing across the country.