- Infrastructural Development Depends on Government Guarantees – DMO
The issuance of guarantees to lenders by government for infrastructure projects is very critical to the development of the country’s infrastructural base, the Debt Management Office has said.
The DMO said the Economic Growth and Recovery Plan of the Federal Government expected the private sector to play a major role in the development of infrastructure, of which for the private sector to play such role, it would require a lot of financing from both domestic and international sources.
“The nature of infrastructure projects is such that lenders would require commitments from the government that awards contracts or grants concessions, usually in the form of guarantees,” it said.
The position of the debt office was contained in a presentation made by the DMO Director-General, Patience Oniha titled, ‘Financing Nigeria’s Infrastructure Development – The Role of the Debt Management Office’.
The DMO advised the government on the policies and procedures for the management of guarantees and other contingent liabilities, saying the guarantees enabled the private sector to access financing for the development of infrastructure and at lower costs.
The report noted, “The DMO appraises projects that require FGN guarantees and puts structures in place to support such projects, while also ensuring that the exposure of the government as guarantor is minimised.
“It has been deepening the Federal Government of Nigeria securities market by introducing new borrowing instruments to provide additional options for financing the government’s operations.
“The DMO has also continued to diversify the investor base for FGN securities to ensure that the government’s financing plans are successfully executed while lowering the cost of borrowing.”
In 2017, the DMO introduced: the FGN Savings Bond for retail investors; the sovereign sukuk for ethical and non-interest investors, and a green bond.
These products provide new sources for financing infrastructure and also provide opportunities for more Nigerians to participate in national development, while earning income on their investments. According to him, the DMO has, over the years, worked with stakeholders to develop Nigeria’s capital market.
By resuscitating the bond market, the debt office said it provided an avenue for other issuers such as sub-nationals, corporates and supranational institutions, to raise long-term funding for developmental projects.
The DMO recently said its activities and that of other operators, had facilitated the establishment of standard and transparent primary issuance systems, of which a vibrant and liquid secondary market had also been created.
Oniha said, “The transformational role expected of the private sector by the ERGP requires access to long-term funding from both domestic and external capital markets. The DMO, through its activities has provided this access and also established benchmarks to guide transactions by other issuers.
“The DMO has the mandate for the efficient management of Nigeria’s debt portfolio at sustainable levels. This is done in various ways, including: negotiating for favourable borrowing terms; servicing debts to avoid default; and eveloping strategies to minimise cost and risk.
“By these activities, the DMO ensures that the Federal Government has continued access to financing, and that borrowing costs are well managed, thereby providing more resources for developmental projects.”
