Avoid domestic borrowing to escape killer servicing bills—Nwankwo, ex-DMO DG
Even as the Federal Government and the current leadership at the Debt Management office (DMO) continue to insist that Nigeria’s debt profile is yet to hit alarming height, former Director General of the Office, Dr Abraham Nwankwo has given fresh insights on why both the Federal Government and corporate institutions should for now, avoid borrowing from within.
Though he encouraged borrowing, he said the best bet remains international where interest rates are within lower single digits and associated seamless terms and conditions.
Dr Nwankwo averred that domestic borrowing was not appropriate for a cash-strapped economy like ours, insisting that “The average cost of domestic debt is significantly higher than the average cost of external debt. In the existing public debt portfolio, the ratio of domestic debt to external debt ratio is still far from the 60:40 mix recommended in Nigeria’s Medium-Term Debt Management Strategy (2012-2015) formulated by the Debt Management Office – although some progress is being registered in the right direction.
According to him, “Given the existing high domestic interest rate structure, significant additional domestic borrowing would exacerbate the domestic debt service revenue ratio, which has already become unacceptably high. In order to avoid crowding out the private sector, government domestic borrowing should be minimised.”
The guest speaker at the 2019 Annual Lecture of Just Friends Club of Nigeria in Abuja refused to align with the current government’s logic of being within safe limits as far as Nigeria’s debt profile is concerned and argued that with the current debt level, it has become an issue of keg of gunpowder.
He spoke on the theme; ‘Realism and paradox in financing Nigeria’s huge infrastructure needs,’ saying the best bet now for the government is to avoid domestic borrowing but explore external funds from international financial institutions to drive the dearth of infrastructure.
Continuing, the former DG of DMO said “Moreover, as the government provides the policy and infrastructure environment for rising economic activities, the private sector is expected to respond by playing the lead role in direct production in the real sector.
“It stands to reason that the government should also leave ample borrowing space for the private sector to enable it adequately and affordably fund its production activities. This will enable the achievement of the ultimate objective of big infrastructure development, leading to a diversified, big and growing real sector,” Dr Nwankwo added.
In rounding off his presentation, he argued that “As corroboration of my point, the African Development Bank had observed that the domestic capital market lacked the size and capacity to fund a substantial portion of the equity and debt requirements of the proposed infrastructure programme”.