By; Sunday Ode, Abuja.
The Federal Executive Council (FEC) Wednesday resolved to move government borrowing away from the domestic market to external sources.
FEC also approved a new debt management strategy to run between 2016 and 2019.
Briefing State House correspondents after the cabinet meeting presided over by Vice President Yemi Osinbajo, Minister of Finance, Kemi Adeosun said decision by FEC was to allow local sources, especially banks to have more money to lend to private sector business entities.
She equally explained that government decision was based on the fact that foreign loans attracted less interest rates and had longer period of repayment.
The Finance Minister also pointed out that the renewal of the debt strategy became imperative as the previous one had expired in December last year.
Adeosun disclosed that the council stressed the need to focus more on exports especially non oil exports, adding that discussions were held around how to make export easier.
She said “Today I presented a memo to the FEC which was approved for the debt management strategy for the years 2016-2019.
“Nigeria started producing debt management strategy in the year 2012 and three years debt management Programme and the previous ones had expired in December 2015 and there was a need for a new one.
“There was need for a new one for two reasons: One was that the previous one had expired; and, two, given the current economic challenges and then the economic strategy of this government to reflate and diversify the economy.
The new debt strategy to be used is based on Medium Term Expenditure Framework (MTEF) as prepared and presented by the ministry of budget and national planning.
“MTEF assumed that we would reduce our domestic debt from one percent of GDP to 0.7 percent by 2019 and the reason for this is that the government recognizes that for the next three years, to really stimulate this economy and to provide the infrastructure that we need, we would need to be borrowing.
“We need to borrow at the most cost effective rate and at the most cost effective and beneficial terms.
“And also the government recognizes that there is a need to stimulate the private sector, for the private sector to really grow, banks must lend to the private sector so we don’t want government borrowing crowding out the private sector.”
“That is the external debts in dollars or in any other currencies because the interest rates are cheaper, the tenures are longer and there is more room for banks to lend to the private sector especially SMEs.
“So the strategy was approved by FEC after much debate. ”
She stated that there was a lot of discussions around reforms that the government would be needing in customs and other ministries to make it easier to export Nigerian goods and agricultural produce and solid minerals that had high demand at the moment.
According to her also, some of the bottle necks that existed in Customs and those under quarantine needed to be removed.
“If we do this, that would create foreign exchange earnings so that these borrowings which are in dollars when they need to be repaid we would have dollar revenues to pay them,” she noted.
She further explained that the council decided that loans or grants taken from World Bank and African Development Bank would be renegotiated so that the country would stand on position of strength.
“And the other issue is that there was a long discussion about multilateral loans which are loans from agencies like the World Bank, African Development Bank and so on.
“Ministers have raised concern that some of the previous agreements that Nigerian government entered into were not optimal and cabinet agreed that these are not grants but loans and therefore Nigeria should be confident enough to negotiate with some of these multilateral agencies to make sure that those loans we take either from the world bank or ADB are on terms that are advantageous to Nigerians.
Also speaking at the briefing, Minister of State for Budget and National Planning, Zainab Ahmed stressed that the importance of the debt management strategy was that it aligns with the MTEF and it was important to do that to move away from short term borrowing to longer term borrowing and to move away government borrowing from the domestic market as much as possible to cheaper external loans.
