Dr. Abraham Nwankwo
Goddy Egene â€¨
The Director-General of the Debt Management Office (DMO), Dr. Abraham Nwankwo Thursday declared that the federal government has assisted private sector operators to raise long-term funds from the bond market contrary to insinuation that government’s borrowing has crowded out the private sector.
Given the downturn the capital market experienced in 2008, the primary equities market has been active due to weak demand by investors.
Many of the companies have therefore resorted to the bond market to raise funds to finance their operations.
However, some of the companies are yet to access the bond market due to the high coupon rate, which they linked to the borrowing activities of the federal government.
However, Nwankwo said that rather than accuse the federal government of crowding out the private sector, government should be commended for reviving the bond market, which has been dormant for many years and has made it more attractive for both private and public sector to access funds.
Speaking in Lagos at the Citizen Newspaper maiden annual public lecture on “Paris Club Exit & New Debt: A growth Imperative or Avoidable Dilemma?,” Nwankwo said the current civilian dispensation revived the bond market that was abandoned by the military regime and made it possible for private companies to access long term funds.
“There was no market for long term funds. The market was abandoned during the military era, so there was no market. It was the civilian government that developed the market and has made it attractive for borrowing long term funds,” he said.
Although Nwankwo admitted that the government has been a net borrower in the market, it has reduced its level of borrowing.
“The government has reduced its borrowing from the domestic market since 2010. The government borrowed about N1 trillion in 2010. This fell to N830 billion in 2011 and the borrowing target this year as contained in the budget is N577 billion. So having built the market, the government is now tactically reducing its borrowing and allowing private sector operators to raise funds from the market,” he said.
He declared that exiting the Paris Club was good development, emphasising that having exited the Paris Club debt, government is aware that it is a trap that must be avoided.
Speaking on how the private sector has benefited from the bond market, the DMO boss said 20 companies raised N200 billion from the market between 2007 and 2012.
According to him apart from N200 billion that was raised from the domestic debt market, other firms have accessed the international capital market for funds following the successful issuance of $500 million federal government’s Eurobond that opened the way for other private firms.