The Federal Executive Council (FEC) has approved the 2016-2019 Debt Management Strategy, which has the government planning to “borrow more externally” as its means of stimulating the economy and providing basic infrastructure.
The decision was reached during the council meeting held in Abuja on Wednesday, and chaired by the Acting President Yemi Osinbajo.
The Minister of Finance, Mrs Kemi Adeosun, while briefing State House correspondents, explained why a new strategy was needed. Firstly, the old one had expired, and secondly, “the new strategy becomes necessary given the current economic challenges and the economic focus of this government to reposition and diversify the economy.”
Explaining why the decision was reached, the minister said, “We need to borrow at the most cost effective rate and to the cost effective and beneficial terms.”
She also added that the administration also recorgnised the need to allow banks more room to lend to the private sector, which will stimulate its growth.
“So we don’t want government borrowing crowding out the private sector.
“So government has taken a strategic decision that where possible, we will borrow more externally, that is external debt, on dollars and other currencies.
“Because the interest rates are cheaper, the tenures are longer and thirdly it means that there is more room for banks to lend to the private sector, especially small and medium size enterprises”.
She also disclosed that the FEC decided it was necessary to focus on exports, especially non-oil ones, as more of the nation’s debt was being moved to dollars.
She said, “There was a lot of discussions around reforms that we’d be needing in customs and other ministries to make it easier to export Nigerian goods and agricultural produce and solid minerals because there is demand at the moment. If we do this, it’d create foreign exchange earnings so that these borrowings which are in dollars when they need to be repaid, we’d have dollar revenues to pay them.”
She emphasised that there is the need for government to shift its borrowing from the domestic market as much as possible to cheaper external loans.
“The purpose of that is to ensure that the financial system here will have more resources to lend to the real sector and the productive sector,” she said.
She also revealed that there is a plan to reduce the level of debt from the 2016 status to 25 per cent in the next three years, and it is a good plan, which has the support of the FEC.