New Debt Management Strategy Appropriate For Our Economic Vision – DMO Boss

The DMO boss noted that the focus of the new initiative is to develop a debt management strategy that would ensure that in the face of macroeconomic and other financial constraints, the cost and risk profile of the public debt portfolio remains within acceptable limit over time, which according to him is imperative for economy recovery and diversification.

Recall that the federal government, as part of a resolve from the Federal Executive Council meeting held at the State House in Abuja on Wednesday 15th June 2016, approved the new Debt Management Strategy to guide the borrowing decisions of the country.

Speaking during a press conference held at the DMO office in Abuja on Monday, Dr. Nwankwo reiterated that the new Debt Management Strategy is in line with President Muhammadu Buhari’s vision to generate maximum employment, reduce poverty and increase the living standard of Nigerians.

Dr. Nwankwo further stated that for this to be effectively achieved, the government is making positive efforts in diversifying the economy against the backdrop of collapse in oil prices and revenue.

While differentiating the new strategy from the former (2012 – 2015), the DMO boss noted that the Debt Management Office took into special accounts the new challenges as well as the new vision for the economy.

He said, “The emphasis therefore is that in developing Nigeria debt management strategy 2016-2019, we will be taking into account the vision of Mr President and the strategy for turning around the economy.

“As you know, we already had a debt management strategy 2010-2015 which expired December 2016, and so, as it is our practice, we needed to have a new debt management strategy to guide the country moving forward.

“But this time is different, given the context of the background I have just given, so which means in preparing this particular debt management strategy, which is the replacement of the one that had expired, we have taken into special account the new challenges, as well as the new vision for the economy.

Analysing the essential ingredients for the new debt management strategy, 2016 – 2019 the DMO boss said: “The Debt Management Strategy we are going to pursue over the next four years, takes into account the fact that for now Nigeria’s public debt portfolio is dominated by domestic debt.

“After the Paris and London Club exits between 2004 and 2006, the country took a deliberate decision to develop its domestic bond market and to do most of the public borrowing from domestic sources so as to develop the domestic bond market, that objective has been sufficiently achieved.

“And therefore taking into account that external financing sources are on the average cheaper than domestic sources, it becomes more necessary to slant more of the borrowing in favour of external sources.

“Therefore one of the major elements of this strategy is that over the medium, term we will strive to remix the public debt portfolio from 84% domestic and 16% external to 60% domestic and 40% external.

“In addition taking into account other factors, the fact that over the next four years public borrowing proceeds will be devoted to capital expenditure an element of the strategy is to ensure that we remix the current status of about 31 percent short-term and 69 percent long-term to a maximum of 25% short-term and a minimum of 75% long-term.

“So we are remixing between external and domestic and we are also remixing within the domestic, between short and long-term.”

Nwankwo further justified the decision to remix in favour of external debt, stating that the country will be able to achieve cheaper cost of funds, lower debt servicing and avoid the risk of crowding out the private sector from accessing the domestic market.

According to him, the private sector is still expected to play the lead role to complement government’s effort.

In addition, the DMO boss dismissed concerns raised by some individuals on the government’s decision to focus on external borrowing in a country currently facing foreign exchange constraints and facing harsh macroeconmic environment.

Dr. Nwankwo revealed that the new strategy is the best for the Nigerian economy as the government is presently making sustained efforts on diversifying the economy, noting that in the next 5-7 years, export proceeds accrued to the economy will be more and our exchange rate will be favourable.

While encouraging Nigerians, he said that the future will be a sustainable one not to be discouraged by the dwindling oil prices, the DMO boss further stated that the citizens should take advantage of the current challenges as a stepping stone to actualize their vision and achieve their dreams.

“One of the questions that will naturally arise and which many of you have asked us, has to do with the challenge of foreign exchange constraints.

“At this point in time our exchange rate is not very favourable and our reserves are not as buoyant as they used to be and people are raising the questions like; why would you go for external borrowing when you have foreign exchange constraints?

“However a closer look at the issue shows that the strategy the government has chosen is still the optimum strategy and the secret to arriving at that conclusion is simply to differentiate between a short-term static situation and a long-term dynamic situation.

“Of course if we are simply focused on the challenges we have currently, there will be undue concerns about our ability to service external debt. However, if you take into account that everything we are doing now are for the purpose of diversifying our economy in a sustained manner so that in the next 5-7 years, we will be exporting a variety of processed and primary products.

“We have all it takes in terms of variety of opportunities in agriculture and in solid mineral for example.

“The efforts being made by the government and private sector is to ensure that many of the products we now import will be provided locally, such as rice, sugar, flower, wheat and fruit juice.”

“We can produce in abundance to satisfy our domestic needs and also have surplus to export. Then you will appreciate that in the next 5-7 years, with Nigerians working hard and in a focused manner, there is no doubt that our exchange rate should be more favourable as the years go by and our reserve will be more buoyant.”

“So thinking in term of medium to long-term the strategy is about right, because we are not bugged down by our current decision, rather we are inspired by where we must be,” Nwankwo added.

He assured Nigerians that in the next few years there will be significant improvement in employment generation, poverty reduction and living standard of the people, adding that as part of the new strategy, the DMO will develop new products particularly the federal government savings bond and also diversify the sources of raising funds domestically.

According to Dr. Nwankwo, the new debt management strategy is necessary to monitor Nigeria’s borrowing behavior over the next four years in other to achieve the vision of President Buhari.