Abraham Nwankwo

In contrast to external borrowing, domestic borrowing in Nigeria will not be appropriate at this stage for infrastructure funding, a former Director-General, Debt Management Office, Dr Abraham Nwankwo, advised the Federal Government on Thursday.

Nwankwo, who was the guest speaker at the 2019 Annual Lecture of Just Friends Club of Nigeria in Abuja, also told senior government officials and private sector operators at the event that Nigeria’s debt profile was problematic.

The theme of his lecture was ‘Realism and paradox in financing Nigeria’s huge infrastructure needs.’

The former DMO boss noted that the most effective approach to addressing Nigeria’s socio-economic development deficit was to frontally address the country’s infrastructure deficit with rapid and massive investment in infrastructure.

He noted that since the country’s annual budgets would not be enough to fund its infrastructure needs, the option available to the government was to borrow.

Nwankwo, however, advised the government to avoid domestic borrowing and explore external funds from international financial institutions.

On why domestic borrowing was not appropriate, he said, “The average cost of domestic debt is significantly higher than the average cost of external debt. In the existing public debt portfolio, the ratio of domestic debt to external debt ratio is still far from the 60:40 mix recommended in Nigeria’s Medium-Term Debt Management Strategy (2012-2015) formulated by the Debt Management Office – although some progress is being registered in the right direction.

“Given the existing high domestic interest rate structure, significant additional domestic borrowing would exacerbate the domestic debt service revenue ratio, which has already become unacceptably high. In order to avoid crowding out the private sector, government domestic borrowing should be minimised.”

He added, “Moreover, as the government provides the policy and infrastructure environment for rising economic activities, the private sector is expected to respond by playing the lead role in direct production in the real sector.

“It stands to reason that the government should also leave ample borrowing space for the private sector to enable it adequately and affordably fund its production activities. This will enable the achievement of the ultimate objective of big infrastructure development, leading to a diversified, big and growing real sector.”

He noted that as corroboration of his point, the African Development Bank had observed that the domestic capital market lacked the size and capacity to fund a substantial portion of the equity and debt requirements of the proposed infrastructure programme.

Nwankwo said the bank further noted the inadequacy of the domestic banking system as well.

He said there was a need to design an appropriate strategy for mobilising and managing the enormous investment needed for adequate infrastructure development in Nigeria

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