DMO clarifies FG borrowing module for USD5.5bn

ITRealms:

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

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Pix: Ms Oniha, DG-DMO

Why FG opted for conservative borrowing - Adeosun

ITRealms:

The Federal Government of Nigeria has explained why it opted for conservative borrowing so as invest in infrastructure to facilitate growth of the economy, according to the Finance Minister, Mrs. Kemi Adeosun, reports ITRealms.

Speaking Tuesday, she explained that the Federal Government opted for a conservative borrowing plan to fund the critical sectors of the economy and to ensure that future generation is not saddled with the burden of debt payment.

The Minister, who described borrowing as inevitable in view of the current realities in the nation’s economy, spoke at a town hall meeting/policy dialogue for good governance organised by the Alumni Association of the National Association of the National Institute of Policy and Strategic Studies, in conjunction with the Federal Ministry of Information and Culture in Abuja.

A press statement by the Special Assistant on Media to Honourable Minister of Finance, Mr. Festus Akanbi, to ITRealms said that other ministers at the event included those of Information and Culture, Lai Mohammed; Solid Minerals, Kayode Fayemi; Power, Works and Housing, Babatunde Fashola; Environment, Amina J. Mohammed; Agriculture, Audu Ogbeh, Health Prof. Isaac Folorunso Adewole and the Foreign Affairs Minister, Mr. Geoffrey Onyeama.

Stressing the urgent need to fund infrastructure, Adeosun said “We have to invest in our infrastructure to allow the private sector to thrive which will create jobs and unlock the economy.

We have to adopt a very conservative borrowing programme but we must borrow because for us to do rail, we need funds with other needed infrastructure we need funds.”

The Minister pointed out that some of the existing rail lines in Nigeria were constructed during the colonial era, which has to be massively upgraded and brought into the 21st century.

According to her, such investment will trickle down to the people through its impacts on agriculture, rail and solid minerals.

She stated, “The rail we have now was done in the colonial era. There was no significant upgrade. We need to urgently do rail for agriculture and solid minerals to be competitive, so I really don’t see any option than to borrow but we will borrow sustainably; we will borrow conservatively to make sure we don’t burden future generation. 

In the past, Nigeria had been borrowing to pay salaries but now we are borrowing to invest. When you borrow to invest, there is an expectation that there will be additional revenue that will service those borrowings.

We will borrow as cheaply as possible and that is why we are approaching the World Bank and Export Credit Agencies to provide concessionary loans. We are taking concessionary loans before going for commercial loans.”

Speaking about the nature of the public service inherited by the current administration, Adeosun stated, “We inherited 1.2million public servants with a wage bill of N165 billion per month. You can’t send people away. What we can do is to build controls to make sure these people exist and are validly working to earn their wages which is why we are carrying out continuous audit which has revived our huge bills by N6billion per month. 

  

The Minister believed time had come to focus on capital funding.  She said, “We had to attack the problem of recurrent expenditure. When we came in, over N165billion went on salary. As we speak, we have reduced it to N159 billion.

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