The Federal Government is set to retire bonds amounting to N75 billion this week as it moves to jumpstart its strategic plan to tackle the nation’s huge domestic debt through a sinking fund.

In the 2013 budget, the Federal Government had outlined a domestic debt management strategy that would enable it start paying off domestic debt rather than the extant practice of rolling over.

In this respect, a sinking fund of N100 billion is being established in the 2013 fiscal year to be used in repaying government’s maturing debt obligations and to curb the rising domestic debt profile.

Coordinating Minister for the Economy and Minister of Finance, Dr. Ngozi Okonjo-Iweala, told THISDAY Monday that of the N100 billion  involved, N75 billion  is being used to retire some maturing  bonds while N25 billion would go into the Sinking Fund.

The minister disclosed that N25 billion being put in the sinking fund, a special mechanism for accumulating funds for paying off domestic debt, adding that the objective was to get domestic debt within sustainable limits in the shortest possible time. 

The strategy announced last year by Okonjo-Iweala was included in the Fiscal Strategy Paper (FSP) for Budget 2013.

The first part of the strategy, she said, was to reduce domestic borrowing to sustainable levels. The second part is the creation of a sinking fund of N25 billion yearly to accumulate money for paying off bonds, a step which has been taken, even as she stated that while the retirement of the matured bonds was aimed at decelerating the debt stock, the N25 billion that was being channelled into the Sinking Fund is in line with government’s strategic plan.

Retirement of the bonds would be a refreshing departure from what appeared to be the norm, which had seen such bonds rolled over at maturity thereby steadily accentuating the debt stock.

The Debt Management Office (DMO) and the Office of the Accountant General of the Federation (OAGF), she disclosed, have already been directed to retire the bonds this week.

The minister, who has consistently lamented the huge domestic debt stock, said President Goodluck Jonathan was indeed worried over the situation and had called for innovative solutions to tackle it.

She stated that since she came on board, there had been concerted efforts to decelerate the rate of accumulation of domestic debt, adding that the sinking fund was a strategic plan to do so.

According to figures obtained from the DMO website, Nigeria’s domestic debt stood at N6.3 trillion as at September 2012.

In the 2011 budget, domestic borrowing stood at N852 billion, which was brought figure down to N744 billion in 2012 and further down to N727 billion in 2013. The projection is that in the medium term (2015), this would come down to about N500 billion.

In a telephone interview with THISDAY yesterday, Director General of DMO, Dr. Abraham Nwankwo said the retirement of the matured bonds was a welcome development as it has the potential of checkmating the explosion of the nation’s debt stock.

Nwankwo recalled that a sinking fund was provided for in the 2013 Budget, stressing that the objective is to redeem bonds at maturity instead of refinancing such, which would culminate in not refinancing of debts and incurring deficits.

The bottomline, he said,  is that the rate of growth debts would be slowed down drastically, noting that he sinking fund would further compliment the current debt to GDP (below 20 per cent), which, he said, remains sustainable.

He stated that when government redeems bonds, it would create more space for other bond borrowers and ultimately bolster the activities of the private sector in stimulating the economy.

“In the medium to long term, it will reduce the average cost of funds which is good for the overall economy,” he said.

At a session with the Organised Privater Sector in Lagos last July, the minister had disclosed a sinking fund was in the offing, “where we are going to take a chunk of our money and put in the fund,” adding: “We are going to take money from there and retire one or two of the bonds. We are not going to just keep on refinancing our debt. The budget (2013) is going to be tight. We are going to use money upfront, with Mr. President’s permission to pay our debt.”

According to her, “our domestic debt is worrying. Our problem is not external debt; our external debt is very low at two per cent of Gross Domestic Product (GDP). But we really need to slow down the rate of domestic borrowing.

“The interest rate at which the Federal Government and states are raising debt at the moment is too high. We are raising debt at 15 per cent because we need the money to finance our expenditure and finance capital.

“Since I came on board, we have been trying to decelerate the rate of accumulation of domestic debt, but because since expenditure was raised in the past three or four years, we cannot just bring it down overnight. So what we can do is to bring down the trajectory and that we have done sharply.”

Source: Thisday (By Ndubuisi Francis)