IN
this interview, Finance Minister, Mrs Kemi ADEOSUN, explains the imperatives of
the Eurobond and its potentials as a catalyst for Nigeria’s pathway out of
recession. Excerpts: Nigeria experienced its first full recession in decades in
2016. What is the government’s strategy
for economic recovery?
At
the heart of the government’s economic strategy is a recognition that we have
to restructure the way the government spends money. Over the last decade
Nigeria has experienced relatively strong growth, but much of this was fuelled
by high oil prices. The broader economy was not delivering the growth that it
is capable of, and which is needed if Nigeria’s people are to experience
improving living standards. We have been far too exposed to oil price shocks and
in 2016 we saw both a major price fall and a simultaneous reduction in output,
which is why the economy fell into recession. We have seen how vulnerable our
economy is.
One of the main reasons for this
was clear deficiencies with the way the Federal Budget was structured. Nigeria
has a huge infrastructure deficit and we cannot deliver broad based growth if
we don’t address that. Our budget process for the last decade has had only a
very limited focus on infrastructure spending. That is why the 2016 and 2017
budgets have been fundamentally re-structured to deliver 30% of spending on
infrastructure projects. We want to utilise government’s spending power to
stimulate an unprecedented investment drive and attract private capital.
Already, in 2016, we have spent more on infrastructure projects than any
previous administration. At the same time, far too much of the Federal Budget
was focused on recurrent expenditure, which had become inflated and
inefficient, with much of the money allocated to the process wasted, or
‘leaking.’ That is why we have spent so much time focused on reforming how
government collects and allocates funds. The TSA means we fully understand the
cash generation profile of all government agencies and can far more efficiently
allocate funds to where they are needed. The impact of every Naira and Kobo
that we spend is far greater than it was when we started and we have far
greater confidence in our execution capacity on projects.
Nigeria launched $1 billion Eurobond
programme earlier this month. Can you tell us why,
and what the outcome has been?
Our strategy for funding the 2016 and 2017
budget ensures that we utilise government revenue to deliver on recurrent
expenditure obligations, while we raise long term debt to fund capital
spending. The Eurobond is part of our funding strategy for our 2016 capital
expenditure and will be spent on key infrastructural projects, in line with our
economic plan. Over the last 2 weeks I have been privileged to lead a strong delegation
including the Minister for Budget and National Planning, the Central Bank
Governor, the DG of the Debt Management Office, the DG of the Budget Office and
representatives of the National Assembly to engage international investors and
we’ve been very pleased with the response. The investment community understand
the strategy we are adopting and have been positive. That is reflected in the
bond being almost 8 times oversubscribed.
What are the terms of the Eurobond?
Why is it better than domestic borrowing? Or borrowing from other external
sources like the World Bank or China?
We
have borrowed US$1 billion over a 15-year period, with an annual coupon of
7.875%. That compares to an average Naira borrowing rate of 15%. The
international capital markets are a key source of capital for us and our
sovereign issuance provides a key benchmark for corporate borrowers looking to
tap the ICM. Ultimately, we want to achieve an optimal mix of borrowing from
the ICM and other external sources, including concessional funding from the
World Bank and China, as part of the 2017 budget process.
What does this mean for the man on
the street? Does this make his life any easier?
We
know that the state of the economy is creating challenges for people across the
country. Inflation is high and so prices are rising. That’s why we have been
working to ensure our social intervention programmes are prioritised, and we
have already started the conditional payments programme. But we also know that
the reason we are in this situation is because we have not taken the hard
decisions to re-structure our economy and we must do so now, if we are going to
offer the prospect of long term improvements in quality of life for all
Nigerians.
How can
the government raise further foreign debt given the current challenges with
foreign exchange liquidity?
The
simple reality is that international debt is considerably cheaper than domestic
debt and while we extensively utilise domestic debt instruments, we need longer
term and cheaper debt to allocate to infrastructure spending. That is available
from international sources, and we are seeking to maximise the tenure and
minimise the cost of this debt so we get the best deal for Nigeria.
Why has it taken so long for the
government to raise the Eurobond?
The Eurobond programme was approved as part of
the 2016 budget, but that process began late, with final budget approval only
delivered in May 2016. We’ve extended the 2016 budget spending cycle through to
the end of March 2017. The Eurobond, and the AfDB loan we secured late last
year, are allocated to capital projects identified in that budget. Is this the
end of borrowing, or should we expect more? The government’s debt strategy has
been well defined and approved by the National Assembly. We are focused on re-balancing
our debt profile to ensure we have longer term debt that can be used to fund
infrastructure development. You can expect to see us continue to raise
international funds over the coming 2 years as we work towards an optimal debt
profile.
Can we
afford that level of debt?
Yes.
We have one of the lowest debt to GDP ratios amongst emerging economies. We
have the headroom to borrow, but we must not be complacent. We must ensure that
we are rapidly increasing government revenue at the same time to give us
enhanced resources to deliver growth.
How are you going to increase
revenue generation then?
We
know we have to expand the tax base. Nigeria’s tax contribution to GDP is only
6%, that’s one of the lowest anywhere in the world and reflects decades of the
populations unwillingness to contribute to government revenue, often because
they don’t believe the money will be spent appropriately, or for their own
good. That is the situation we have to change, and it is why we spent so much
of 2016 re-structuring the way government collects, allocates and spends money.
We have to build confidence in that process, if we are to attract the kind of
tax base that can deliver increased government revenue. We believe that if we
show Nigerians things can be done differently, then we can rebuild the social
contract with citizens to pay their fair share of taxes. We are already
beginning to deliver on this, with a focus on improved customs collections,
including migration to a single window (with support from the NSIA) and simultaneously
strengthening controls in SOEs.
No comments:
Post a Comment