The Federal Executive Council (FEC) on Wednesday approved a medium term debt management strategy to address the structure and level of the nation’s domestic and foreign debts.
As part of the strategy, government will access concessionary windows or raise cheaper foreign loans and use it to offset the more expensive domestic debts.
The Minister of State for Finance, Yerima Ngama who disclosed this while briefing State House correspondents on the outcome of the FEC meeting presided over by President Goodluck Jonathan at the State House, said the medium term debt management strategy was designed to address the challenges of growing domestic debt and create space for the private sector to access more credit.
“The strategy was developed jointly by the Debt Management Office (DMO) and the CBN with input from National Bureau of Statistics and the National Planning Commission,’’ he said.
Mr Ngama said the structure of the nation’s debt was not optimal because 88 percent of the debt was domestic, while only 12 percent was foreign. “We have a total of over N6 trillion worth of debt. However, it is not just the level but the cost of servicing the debt.
“Nigeria has one of the highest interest rates in the developing world and if you have a high level of debt, then debt servicing will become very expensive,’’ he said.
The minister said that after offsetting the huge foreign debt owed to the Paris and London Clubs, the country had concentrated on developing internal ways of raising resources.
He said the 2010 wage increase for public servants, which made government to raise a N3.6 trillion bond, was one of the reasons for the growth in the domestic debt profile.
“The increase in wages had led to an annual budget deficit of N1 trillion, sourced locally and not covered by the budgets,’’ Mr Ngama added.
He said Federal Government’s intervention to curtail the impact of the global economic recession was also responsible for the sharp increase in the domestic debt.
The minister recalled that in order to keep the economy afloat during the global crisis, the government added some stimulus spending which was raised internally, adding that this also led to the huge domestic debt.
“Payments made to local contractors for jobs done many years back and not captured in the budget and the paying off of the pension and gratuity to NITEL and Nigeria Airways staff also increased the domestic debt profile,’’ he said.
Mr Ngama said the more than N699 billion used to service domestic debts in 2012 created a disproportionate debt financing.
He said the high rate of borrowing by government from local banks was responsible for the inadequate funds to the private sector and its multiple effects on economic growth.
The minister said the strategy adopted by the Council would assist in reversing the trend, keep the debt structure in an optimal way and decrease domestic debt.
Ngama said the country’s borrowing profile was acceptable at 18 per cent of GDP.