Nwankwo: We’re Aligning Long-term Debt with Infrastructure Needs


Director-General, Debt Management Office (DMO), Dr. Abraham Nwankwo, in an interaction with journalists in New York, provided further insights on Nigeria’s debt strategy and the successful $1 billion Eurobond issue

The 2016 and 2017 Budgets include significant deficits that the government must fund by increased borrowing. As the director-general of the Debt Management Office, this makes your role extremely important. Can you take us through the current government’s debt strategy and the motivation behind it?

First of all, we have to start from the position we are currently in. Our debt to GDP ratio is low compared to our contemporaries in Africa and other emerging markets. We have plenty of headroom to borrow further in order to fund growth, and that is the strategy that this government has adopted. But the emphasis of government is that proceeds of loans must be used to fund crucial infrastructure projects. The value added has to be maximised.

Nigeria’s debt strategy is directly aligned to the spending plans of the Federal Government incorporated into the governments Medium Term Expenditure Framework. At the heart of the strategy is a clear recognition that Nigeria needs to deploy long-term, relatively cheaper capital to finance recovery and growth.

So Nigeria can afford to borrow further?

Absolutely, as I have said, we have a very low debt to GDP ratio; more importantly, the borrowed funds must be used to generate growth and employment and improve people’s living standards.

Where we need to focus, is on increasing government revenue so that the cost of servicing our debt portfolio decreases as a proportion of annual spending. We do not have too much debt, we simply do not have enough revenue, and that is the focus of this government and has been for the last 18 months.

What is the return we are going to get for all these debts? Is it worth it?

As a country, we need to fix our broken infrastructure. It is fundamental to achieving long-term growth and improved quality of life. Adequate infrastructure is essential for diversifying revenue sources and making the economy more competitive. We are aligning long-term debt with those infrastructure needs and are committed to delivering an economy that works better for all of us.

What about the risks associated with borrowing in dollars given current forex liquidity issues?

We believe these risks are very manageable. With loans of up to 15 years, at a relatively favorable cost, the competitiveness that will result from the improvement in infrastructure will enable the country to generate enough foreign exchange in the medium to long term to service these debts.

In essence, strategic long-term foreign borrowing at this time is imperative for overcoming the dependence on oil for almost all of the country’s foreign exchange earnings.

What are the proceeds of the Eurobond going to be spent on?

The government has identified a clear focus on increased capital spending, with circa 30 per cent of the 2016 and 2017 budget’s allocated to capital spending. This is specifically designed to address significant structural issues and reset the economy. The Honourable Minister of Finance has spent considerable time ensuring that the system is ready to deploy these funds, with maximum efficiency and now is the time to invest.

The current Eurobond will be used specifically to fund critical infrastructure projects in the 2016 budget, with the objective of supporting activities in the real sector of the economy – agriculture, agro-processing, light manufacturing and solid minerals development.

The Eurobond was priced at 7.875 per cent and over a 15-year term. Why ?

The government is very happy with the outcome from the roadshow and the transaction. Not only did we get a good price for the debt, it was heavily oversubscribed. Investors remain confident in Nigeria’s outlook.

We elected to pursue a 15-year term because we need long term financing to enable infrastructure investment, and traditionally we have approached the market for 10-year money. Over time and as we engage with markets further, we will be in a position to borrow on better terms, and over longer periods of time.

Can we expect further borrowing in 2017? And from where?

Yes. The 2017 budget includes a deficit of N2.32 trillion of which N1.067 trillion will be sourced from external sources. The Eurobond we’ve just completed was to fund the deficit and capital spending in the 2016 budget; for the 2017 budget we will be determining the optimal approach over coming months.

In addition, N1.254 trillion will be raised from the domestic capital markets giving us a 46:54 debt ratio between international and domestic borrowing to finance the 2017 budget deficit.