Perhaps at no time in the history of Nigeria has the federal
government come under such intense pressure to deliver on the economy as now,
and this is understandable. 2016 closed with Nigeria recording its worst GDP
figure in 25 years as low oil prices, tight monetary liquidity and militant
attacks on oil infrastructure rocked the economy.
The Consumer Price Index, which measures inflation, also
increased by 18.72 January this year. National budgets have continued to run
into deficits as oil revenue dwindles. The federal government and many state
governments find it increasingly tough paying salaries of their workers.
The private sector has not fared better. Since the government is
the biggest spender in the economy, a drastic cut in revenue means less money
in the system. Many companies that depend hugely on government patronage are
bearing the brunt of the recession and laying off staff to reduce overhead. The
result is that more Nigerians are finding themselves in the unemployment market
with no hope of immediate engagement.
President Buhari came to power on the promise of change, and he’ss under an
unprecedented pressure to deliver economic change at a time the country faces
its worse economic challenges. In economic matters, there are no miracles, but
conscious, calculated and strategic intervention through policies and measures
that can bring the economy out of recession.
All eyes are on the Government to stimulate the economy by doing whatever is
needed to bring it quickly out of a debilitating recession. That is why
institutions such as the Debt Management Office,DMO, the Security and Exchange
Commission, SEC, and the Nigerian Economic Summit Group, NESG, among others,
are increasingly in the headline news.
The DMO is a government agency established to coordinate the management of
Nigeria’s debts in such that is healthy for the economy. Anyone who has
followed developments in that office will readily admit the DMO has been a work
horse for this admiration. Watching Dr Abraham Nwankwo, Director General of the
DMO talk on Nigeria’s debt management is like listening to a lecture in an
ivory tower.
The man seems to be at his best when defending some of the interventions of
this administration, especially when talking about the government’s borrowing
plan to finance the growing budget deficit. But this is to be expected from the
head of the debt management office since he is also an important part of the
equation. It is like a man defending his own actions before a sceptic audience.
What has fascinated me about this man is how he breaks complex economic issues
down into bits and pieces that can be easily digested by the lay man. For
instance, the Buhari administration’s plan to seek loan to finance development
projects in the country as a result of shortfall in government revenue. Nwankwo
has tried to convince Nigerians on why borrowing is good for the economy; why
loan properly utilised is a sort of investment that is capable of reflating the
economy of any country.
A three year Debt Management Strategy (2016-2019) initiated by the DMO better
illustrates how debt management has become a key component of Nigeria’s
economic recovery effort. It is a broad-based strategy that inspires confidence
in the economy and in the managers of the economy. One major aspect of the
strategy is that over the medium term, Nigeria will strive to remix the public
debt portfolio from 84% domestic and 16% external to 60% domestic and 40%
external. And the reason, which may not be obvious to many is that external
loans seem to come cheaper than domestic borrowing.
The DMO DG said during one of his interviews that for Nigeria to pull the
economy out of recession, government must embrace what he called a
“conventional public borrowing” to fund critical infrastructures. This is not a
loan to be disbursed at the whims and caprices of the presidency; it is loan
tied to specific and strategic projects to give the economy a rebound. And this
he said, could easily be tracked by the public and the legislature.
This thinking informed the decision by the Buhari administration to decide on a
three-year borrowing plan to fund deficits in the budget from 2016-2019. In the
words of President Buhari, it is a “prudent” borrowing plan to bridge the
financial gap created in the budgets, stressing that the funds would largely be
applied to key infrastructure projects namely power, railway and road project
amongst others.
The DMO recently facilitated the approval of the issuance of $1 billion
Eurobond and appointment of six transaction parties for the bond by the Federal
Government. The bond is part of the country’s plans to borrow a total of N1.8
trillion ($5.8 billion) from abroad and locally to fund an estimated 2016
budget deficit of N2.2 trillion. Apart from the fact that it is a good deal for
the country, it will also prevent the emasculation of local investors.
Now,the DMO is in the news again. This time it is promoting a novel product and
one that benefits majority of Nigerians. This is the newly floated Federal
Government Savings Bond, FGSB. This is the first time one has heard about this
type of bond. Of course bonds are debt instruments in which an investor loans
money to an entity (typically corporate or governmental) which borrows the
funds for a defined period of time at a variable or fixed interest rate.
The owners of such a bond are creditors or debt- holders.
Although the federal government regularly churns out bonds to raise fund from
the capital market, this one is different. The FGSB is a retail savings product
accessible to all income groups, and it will enable all citizens participate in
and benefit from the favourable returns available in the capital market which
had hitherto being an exclusive preserve of big players. Every Nigerian who has
N5,000 can subscribe to this bond that will be issued monthly for a tenure of
two to three years.
The minimum subscription amount is N5,000.00 with additions in multiples of
N1,000.00, subject to a maximum ofN50,000,000.00. And there is no fee or
charges for subscription. No matter the tenure of the bond, interest will be
paid quarterly to holders. The payment will go to the Central Securities
Clearing System (CSCS) Accounts of investors and text alerts will be sent to
investors on Settlement Day.
The purpose of this bond, aside being a source of diversified funding for
government, is to also help deepen the national savings culture. Anyone who
earns income is able to participate in this unique investment opportunity.
This is an alternative for many Nigerians who have taken to the Ponzi schemes
as investment option. The FGSB, like all government bonds, is backed by the
full faith and credit of the Federal Government of Nigeria. It is a scheme
Nigerians must take advantage of to help themselves and their country. It is
another innovation from the rich bag of the country’s economic managers.
Isaac wrote in from Ilorin.
*Contributed by Olu, Isaac
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.jpg "L-R, Chairman of the Board of Directors of Renaissance Africa Energy Company Limited, Dr. Layi Fatona; Chief Executive Officer of Afentra Plc, Paul McDade; Chief Executive Officer of ND Western, Lanre Kalejaiye; Managing Director and Chief Executive Officer, Heirs Energies Limited, Osayande Igiehon; Chief Executive Officer of Perenco, Armel Simondin; and moderator, Justin Cochrane, after a panel discussion on the topic, “Frontier Plays within Africa’s Mature Basins” at the Africa Energy Week conference held in Cape Town, South Africa… last week.")
