Debt financing to tackle Nigeria’s infrastructure deficit, says DMO ex-DG

A former Director General of the Debt Management Office (DMO), Dr. Abraham Nwankwo, has said Nigeria’s infrastructure deficit could be addressed through debt financing.

He, however, noted that the widespread notion that public debt should be used to finance the nation’s huge infrastructure needs was a paradox in view of the precarious situation plaguing the polity.

Speaking yesterday in Abuja at the third Just Friends Club of Nigeria (JFCN) yearly lecture, Nwankwo argued that the resolution lies in the creative unbundling of debt sustainability.

In the context of financing infrastructure for the structural transformation of the economy, he explained that distinction should be made between conventional debt sustainability, which is essentially static, and what one would identify as structural debt sustainability, a forward-looking view of the economy.

Nwankwo noted that the assessment of debt sustainability in the latter case should focus on how the additional debt would be effectively applied to the development of infrastructure

His words: “The secret is that it is feasible to articulate a bold plan for the transformation of the economy via a sustainable plan, financed with new debt towards one that is more diversified, more competitive, more export-capable and less vulnerable to external shocks. Specifically, the new debt will generate adequate outputs and cash flows to cover its servicing and amortisation and create surplus while avoiding, by design, foreign exchange risk.”

“The net impact of the new debt on debt sustainability, therefore, is that by creating added value, it even helps to reduce the pre-programme debt burden, rather than exacerbate it.”

Delivering a topic entitled “Realism and Paradox in Financing Nigeria’s Huge Infrastructure Needs”, Nwankwo submitted that such plan was a condition precedent to effective debt financing of infrastructure.

“A robust macroeconomic model with detailed financial programming is perhaps the most important component of the document. It will elicit the trajectory of transformation, breakthrough and self-sustaining growth that would result from the capital injection in big infrastructure development. It will demonstrate how exchange rate risk will be neutralised,” he added.