The federal government is not comfortable with the huge debt profile of the country which has reached an alarming rate at over N6 trillion.
According to the Minister of State for Finance, Yerima Ngama, of serious concern to the government was the high cost of servicing the domestic debt which constitutes the chunk of the entire debt portfolio.
Yerima told correspondents on Wednesday at the weekly post-Cabinet briefing that a medium-term debt management strategy jointly developed by Debt Management Office (DMO), the Central Bank of Nigeria
(CBN) and with inputs from the National Bureau of Statistics, the World Bank and IMF has been approved by the Cabinet.
“Today at council, we presented the medium term debt management strategy, that will outline the strategy we intend to pursue for the period of this year until 2015 and we presented the positions as it is and also several options and we made our recommendation,” he announced.
According to him, the strategy was put together “because of the current situation we find ourselves as far as the structure and level of our debt is concerned. The structure of our debt is not optimal. The bulk of the debt of our country, in fact 80 percent is domestic and only 20% is foreign debt.
“And then the level, we have a total of over N6 trillion worth of debt, however it is not just the level but the cost of servicing that debt. Nigeria has one of the highest interest rate in the developing world and if there are high levels of debt then debt servicing will become very expensive”.
“So the position as it is, is not good enough. We have high interest rate, high debt service. Last year alone we paid about N699 billion to service the debts. We have been having deficit of about N1trillion every year in the budget because of huge increase in the salary bill and this has to be financed by raising more and more domestic debt. So actually we are in a spiral of continuously increasing domestic debt”.
Speaking on the different options presented before Cabinet, he said “the third option is to see how we can access concessionary windows or raise cheaper foreign loans and use them to actually pay down the more expensive domestic debts. Once we tilt the structure, from 84% to 16% while the 16% is non-concessional, then the domestic and foreign will also tilt to that.
“So, we can have may be 40 percent foreign debt and 60 percent domestic debt. If we do that after we play it out we are going to reduce out total debt burden to .5% by the year 2015 and we think that is better than the level we are today which is just 2.2%.
“So, when we do that we can bring a lot of benefits to the country and we will manage the finances free and also reduce the cost of borrowing and that mixed option is the one that the federal government approved and we are happy for that approval.
“And one thing is that we are not just going to do it overnight we won’t just start taking loans from abroad or selling bonds we will do it very gradually. We are going to have a smooth transmission so that everything is well managed and that there is no shock to the system,” he assured. The Minister however insisted that “we are very careful in selecting the type of loan we get. The debt right now is about 18 percent of our GDP which means we are under-borrowing as a nation compared to the total economic activities in this nation, we should borrow more.
“When we are below 20 percent, we are under-borrowing compared to the size of our economy. When you look at our economy, we are middle income country; Nigeria is not a low-income country. So, as a country, we are under-borrowing,” he said.