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NIGERIA: FG to Float Sinking Fund for Repayment of Matured Bonds

 The Director General, Debt Management Office (DMO), Dr. Abraham Nwankwo Thursday disclosed plans by the federal government to create a sinking fund to enable repayment of part of maturing FGN bonds.

The purpose, according to him, is to ensure that money is not borrowed to refinance existing debts so as to avoid the accumulation of debts.

Although no amount has been specified for the sinking fund, the DMO is expected to advise the federal government on annual basis on the figure to be provided based on the debt maturity profile.

Addressing journalists in Abuja on the implications of the recent approval of the new Medium-Term Debt Management Strategy 2012-2015, by the Federal Executive Council (FEC), he explained that the new debt strategy was expected to significantly reduce the amount spent on debt servicing by achieving an optimal mix between the relatively more expensive domestic loans and the less costly external borrowing.

He said going by the new debt plan, the DMO anticipates achieving a more balanced public debt portfolio-preferably, in the ratio of 60 to 40 for domestic and external debt, respectively as against the current posture of ratio of 88 per cent for domestic and 12 per cent for external loans.
He put the difference between the domestic and external average cost of borrowing at about eight per cent per annum.

The DMO boss said going forward, the guiding principle for all borrowings would be value for money and targeted at specific projects such as the power sector to that monies borrowed are strictly used for the purposes for which they are obtained.

He said the new strategy would stabilise and deepen the domestic debt market to attract the inflow of more foreign investments into the country as government would be leaving ample space for the private sector to borrow from the domestic market.

According to him, the debt strategy, which is the first in the country, also has the potential to create more borrowing space for the private sector to access long-term funds to grow the real sector, as well as to encourage them to play prominent role in the development of critical infrastructural projects for economic growth.

He added that the new measure would help attain appropriate mix in terms of currency composition, interest rate structure and concessional versus commercial borrowing among other positive prospects.

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