The Coordinating Minister of the Economy and Minister of Finance, Dr. Ngozi Okonjo-Iweala, has disclosed that the federal government had to streamline its domestic borrowing in order to save the economy from being undermined by private and institutional creditors.
The minister in a paper – Clarifying Nigeria’s Debt Position- observed that with the country’s debt stock growing, especially to finance recurrent expenditure as was done in 2010 for the 53% in salary increase for civil servants, was less than ideal.
According to Okonjo-Iweala, government has been able to bring expenditures and revenues in line through a low fiscal deficit of 1.18% GDP, pointing out that with the measures put in place, annual domestic borrowing was reduced from N852billion in 2011 to N744 billion in 2012, and much further to N577billion in 2013.
She explained that the two main reasons that domestic borrowing grew were because “the initial growth of the domestic debt stock was because the federal government wanted to deepen the domestic debt markets and generate a yield curve for Nigeria which ultimately could help our corporate bodies to access the capital markets and borrow funds at more affordable rates. The DMO through its work has been successful in doing this.
“Secondly, however, domestic debt was also raised to finance increased budget expenditures including consumption. For example, in 2010, the 53% salary increase for civil servants was financed by raising domestic bonds,” the minister said.
She also stated that the “objective is to reduce government’s domestic borrowing to below N500 billion in the 2014 budget.
“Second, for the first time, we have paid down part of our domestic debt rather than rolling all of it over. Beginning in February 2013, we successfully retired N75 billion worth of maturing domestic bonds. And we will continue with this practice in the coming years.
“Third, we have established a sinking fund with an initial capitalisation of N25 billion. This fund will enable the government to retire maturing bond obligations in the future.
“Fourth, we are working increasingly with states to get a clearer picture of domestic debts acquired by state governments, thanks to the comprehensive review recently completed by the DMO. Our particular concern is that state governments limit borrowings in line with their incomes and put any borrowings made to work on specific projects and programmes that bring direct beneficial results to their citizens.”