The Debt Management Office (DMO) has clarified the plans of
the Federal Government to source for capital worth USD5.5 billion, from the International
Financial Markets, reports ITRealms.
In a Press Release, made available to ITRealms, the DMO
stated that the proposed USD5.5 billion comprises of two components: USD2.5
billion new borrowing and USD3 billion for refinancing.
USD2.5 Billion
The first component of USD2.5 billion, represents new
external borrowing provided for in the 2017 Appropriation Act to part finance
the deficit in that Budget. It will be recalled that the 2017 Appropriation Act
provided for new External Borrowing of N1.067 trillion or USD3.5 billion at an
Exchange Rate of USD/N305. Out of this amount, USD300 million has been raised
through a Diaspora Bond that was issued in June 2017 leaving a balance of
USD3.2 billion out of which USD2.5 billion is to be sourced through a Eurobond
Issuance.
The USD2.5 billion proposed Eurobond, will be used to finance
critical road and rail projects included in the 2017 Appropriation Act. Some of
the projects are: construction of a Second Runway at the Nnamdi-Azikwe
International Airport; rail projects including Lagos-Kano, Calabar-Lagos,
Kano-Kaduna, Ajaokuta-Itakpe-Warri, Kaduna-Idu; and the Bodo-Bonny Road with a
Bridge across the Opobo Channel.
These infrastructural facilities will lead to job creation
and improve the climate for business thereby contributing to economic growth.
USD3 Billion
The DMO also provided further clarifications on the issue of
the proposed USD3 billion External Borrowing that will be used to repay some of
the existing domestic debt. In the explanation, the DMO stated that this was
purely a portfolio restructuring activity that will not result in any increase
in the public debt as it is simply an exchange of one type of debt (Domestic)
for another (External). The DMO stated that, the Domestic Debt Stock as at June
30, 2017 included about N3.7 trillion of Nigerian Treasury Bills (NTBs) with
tenors of less than one year and at interest cost of about 17% p.a.
The short term nature of the NTB stock and the high interest
rate, expose the public debt to refinancing risk and high Debt Service Costs.
By converting them to External Debt, the tenor will be extended to at least 5
years while the Interest Cost will drop to about 7% p.a. The savings in Debt
Service from this exercise is estimated at over N90 billion per annum.
Benefits of these External Capital Raising
i. Reduce Debt
Service
Reduce the Interest Cost of Borrowing as external borrowing
in US Dollars is much cheaper at about 7% p.a. compared to up to 17% p.a. in
the domestic market.
ii. Increase
Stability in the Debt Stock
Extend the tenor profile of the debt stock as longer-dated
External Debt is used to replace short term domestic debt. This would make the
debt portfolio more stable, thereby reducing refinancing risk.
iii. Increase in
borrowing space for the private sector
The pressure in the domestic market created by the large
government borrowing will be reduced. This will create more space for borrowing
by the private sector which will enable them contribute to the growth of the
Nigerian economy.
iv. Increase in
Nigeria’s External Reserves
External Borrowing represent foreign currency into the
nation’s External Reserve thereby allowing for a stable exchange rate for the
Naira.
Other Considerations
The proposed USD2.5 billion new borrowing through Eurobonds
to part finance the deficit in the 2017 Appropriation Act and the refinancing
of existing domestic debt through external capital raising of USD3 billion, are
consistent with Nigeria’s Debt Management Strategy, whose main objective is the
increase external financing with a view to rebalancing the public debt
portfolio in favour of long-term external financing in order to reduce the cost
of debt and lengthen the maturity profile.
The DMO added that in contracting external debt, a conscious
effort is made to exhaust all opportunities available from the concessional
sources in order to reduce the level of External Debt Service.
Furthermore, all Borrowings are approved by the National
Assembly and are included in the Annual Budgets and the Medium Term Expenditure
Framework (MTEF).
*Courtesy: Ifeanyi
Omokwe
ITREALMS ... everything news digitally!
Pix: Ms Oniha, DG-DMO
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