Buhari adopts new debt strategy to bolster real sector

President Muhammadu Buhari.

To correct the existing anomaly where the private sector is crowded out of the debt market by the Nigerian Government, President Muhammadu Buhari has directed the Debt Management Office ( DMO) to lean towards external sources and specifically cheaper means of raising funds for Government’s development needs rather than concentrate domestically to raise funds thereby frustrating the chances of the real sector in the country to raise funds for either expansion of their operations or fresh start -up.

Under the new directive which has been approved for the DMO by the Federal Executive Council, under the debt agency’s 2016 to 2019 strategy plan, the DMO is to reverse its strategy of domestic sourcing of funds which at the moment is on the ratio of 84 per cent domestic and 16 per cent foreign debt to a new plan of 60 per cent foreign debt and 40 per cent domestic.

Out of a total Nigeria’s public debt stock of N12.603 trillion ( about $65.428 billion) as at end December last year, the domestic component comprised N8.836 trillion while the foreign component is at N2.111 trillion, showing that Government’s over over bearing or dominance in the domestic debt market may have negatively affected the chances of the private sector to raise funds domestically.

The Director – General of DMO, Dr. Abraham Nwankwo told a select media interactive session yesterday in Abuja that the agency would commence the implementation of the new policy directive in debt management in the country.

He spoke on the new policy directive : “ The main guideline and targets of the new debt management strategy includes, debt composition targeting an optimal debt of 60:40 for domestic and external debt, respectively , as against the 84:16 as at end 2015, by progressively increasing the percentage share of external financing taking in to account the need to moderate foreign exchange risk in the short to medium term .”

Nwankwo explained that , going by the economy diversification agenda of president Muhammadu Buhari’s administration with strong preference for developing agriculture, mining and other non- oil sector for export , huge funds would be required to be invested in key infrastructures such roads, power and in other areas. He said such funds can not be borrowed locally due their short- term tenure of maturity.

It would be recalled that under the leadership of the current management of the debt agency, most of the now debt – ridden dash- trapped State Governments received very high debt sustainability score and recommendations to the banks and the Nigerian Capital Market to enable them raise funds.

The sustainability rating, unfortunately was largely based on the States’ allocations from the Federation Account, driven by oil mineral sales rather than on their internally generated revenue ( IGR) ability which is what has now become the litmus test for many of them to service their indebtedness.