The federal government has disclosed that it had taken a strategic decision to borrow more externally, where possible. The Federal Executive Council (FEC) also approved the debt management strategy for the year 2016-2019. The renewal became imperative as the previous one had expired in December last year.
Speaking to State House correspondents after the FEC meeting presided over by acting president, Yemi Osinbajo, minister of finance, Kemi Adeosun, revealed that the federal government would increase its external debt 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.
Adeosun noted that the Council stressed the need to put more focus on exports, especially non-oil exports, adding that discussion was held around how to make exportation easier.
“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. The previous ones had expired in December 2015.
“There was a need for a new one for two reasons: one was that the previous one had expired, and two was due to the economic focus of this government to reflate and diversify the economy,” she said.
According to her, there was a need for a new debt strategy, so the debt strategy to be used is based on medium term expenditure framework as prepared and presented by the Ministry of Budget and National Planning.
She further explained: “MTEF assumed that we would reduce our domestic debt from one per cent of GDP to 0.7 per cent by 2019 and the reasons for this are that the government recognizes that, for the next three years, it has 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 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,” she stated.
She added that external debts are more cost-effective 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. While approving it, FEC suggested some guidelines which were that, as we are moving more of our debt to dollars, we need to focus more on exports, especially non-oil exports, and discussion was held around how to make export easier,” she explained.
