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FG to raise foreign borrowing to 40%

By on June 22, 2016

The Federal Government on Monday unveiled a new debt management plan for 2016 to 2019, aimed at raising the country’s foreign debt portfolio to 40 per cent of the total debt mix.

At a news briefing in Abuja, the Director-General, Debt Management Office, Dr. Abraham Nwankwo, said foreign loans were cheaper than domestic loans.

At present, the country’s total debt is steeped in favour of domestic borrowing at 84 per cent, while foreign debt accounts for the balance.

However, in rebalancing the debt mix, Nwankwo said the government would take into consideration the current foreign exchange challenges, but expressed confidence in the capacity of a diversified economy to service foreign debts.

Nwankwo said it was also important to borrow more from foreign sources in order to ensure that the private sector was not crowded out from the domestic debt market.

The DMO boss said the government would also rebalance domestic borrowings in favour of long-term debts against short-term obligations.

He said, “It is a medium-term project from 2016 to 2019 that sets out the broad guidelines within these four years.

“The DMO plans to introduce new products with a view to further diversifying the investor-base, boost financial inclusion and national savings culture for increased gross capital formation, create more benchmarks, and deepen the domestic and external markets for government securities.

“A significant reduction in cost will require that the government accesses relatively cheaper long-term external financing in such a way that it first maximises the available funds from the concessional and semi-concessional sources, taking into consideration what may be readily available within a given period after which other external sources will be accessed.”

Nwankwo added, “The impact on maturity profile of the total domestic debt could be significant; hence reducing the risk of bunching, roll-over risk and the associated debt servicing costs.

“The fact that the borrowings (both domestic and external) will be used to fund priority infrastructure projects, which will boost output and put the economy on the path of sustainable growth and competitiveness, and the fact that the loans are long-term (15 years and above), which means that the economy would have been sufficiently diversified for increased export earnings for ease of debt service payments.”

Our correspondent reported that the country’s total debt as of December 31, 2015 stood at N12.6tn.

 

[Punch]