The Federal Government plans to borrow N1.6 trillion from both international and local sources to finance the 2019 budget. The Director-General of the Debt Management Office(DMO), Ms Patience Oniha disclosed yesterday.
The level of borrowings has been dropping: According to Ms Oniha, the Government has recently made effort to reduce its ldebt profile. The level of new borrowings dropped from N2.2 trillion in 2017 to N1.6 trillion in 2018.
FG’s borrowing formula: Oniha, who made this known while speaking at the Association of Issuing Houses of Nigeria’s semi-annual business lunch in Lagos State, said the government adopted a 50:50 approach to spread its borrowing between international and local borrowings.
Oniha denies FG crowding out private sector from debt market
The Director-General addressed the belief that the government was crowding out the private sector from the debt market. According to her, the notion was untrue because Corporate organisations prefer to borrow from banks.
“THERE ARE ISSUES AROUND GETTING SUB-NATIONALS AND CORPORATES TO COME TO THE MARKET.
“CORPORATES PREFER TO BORROW FROM BANKS BECAUSE IT IS FASTER AND HAS LOWER RISK THAN THE DEBT MARKET. IN ORDER FOR US TO GET THESE PEOPLE TO COME TO THE MARKET, WE HAVE TO GO BACK TO THE DRAWING BOARD AND PLAN HOW TO TACKLE THESE ISSUES.”
What’s crowding out: It is an increase in government participation in the investment market that reduces the chances of other businesses. When the government increases deficit financing it sucks up available financial resources causing interest rates to rise thereby limiting the chances of private sectors to borrow.
Why there’s a crowding out issue
In reaction to Oniha’s statement, several capital market experts structural issues in the economy were hindering the participation of sub-nationals and corporate in the debt market, while the Chief Executive Officer, FMDQ OTC Securities Exchange, Mr. Bola Onadele, blamed it on the State Government’s refusal to partake in the activities.
Onadele, however, urged the Federal Government to support exchanges in attracting sub-nationals and corporate to the debt market.
Capital Market operators want to dictate activities: The Executive Secretary, Nigerian Investment Promotion Commission, Ms. Yewande Sadiku, said it’s the duty of the operators to tell the government what to do, arguing that it’s no longer best to stay on the sideline.
“WE CANNOT ATTRACT CAPITAL AND INVESTMENT IF WE DO NOT ADDRESS KEY STRUCTURAL ISSUES. INFRASTRUCTURE IS NECESSARY AND SHOULD BE ADDRESSED.
“THERE ARE ALSO MATERIAL SECTORS THAT THE GOVERNMENT NEEDS TO HAND OVER TO THE PRIVATE SECTOR.
“WE ARE CURRENTLY ATTRACTING INVESTMENT INTO SECTORS THAT DO NOT BRING BIG NUMBERS. AS CAPITAL MARKET OPERATORS, IT IS OUR DUTY TO TELL THE GOVERNMENT WHAT TO DO; WE CANNOT LONGER SIT AND WATCH. IT FALLS DOWN TO THE GOVERNMENT TO ADDRESS THESE ISSUES WITH URGENCY.”