FG to replace N900 billion domestic debt with US$3 billion foreign debt


The Federal Government says it plans to issue $3billion worth of bonds to refinance maturing government Treasury Bills, as it seeks to cut cost and extend debts maturity.

The plan, which will go to the National Assembly for approval, targets to relieve pressure on the country’s debt service, which is currently consuming about 40 percent of government revenues.
Officials say the plan is to borrow more in foreign exchange, which is cheaper than borrowing in local currency.
“What we are simply doing is as Nigerian government treasury bills mature, instead of rolling them over, which is what we have been doing, we are now going to pay them off by the proceeds of dollar denominated bonds, which we will be issuing and those bonds are 3-year bonds, whereas the treasury bills on average, are 91 to 364 days.”
So, we are taking short money and refinancing it long,” Finance Minister, Kemi Adeosun said while briefing journalists after the weekly Federal Executive Council (FEC) meeting on Wednesday in Abuja.

The Council also approved the 2018-2020 Medium Term Expenditure Framework (MTEF) Fiscal Strategy Paper.

The new development on Nigeria’s borrowing will also relieve the crowding out effect on the private sector and free up more cash for banks to lend to the private sector, Adeosun explained, adding that it would have a multiplier effect on job creation in the country.

“As you all know, we got an approval in June, to restructure our debt and borrow less in naira and more in dollars because it is cheaper and we want to create room for the private sector to go and borrow, so that they will be able to create jobs.

“So, by reducing government’s borrowing by $3billion in the domestic market. We will be creating more room for banks to lend to the private sector and hopefully that will also create some downward pressure on interest rate, which we all agree needs to come down.

“We got approval to refinance treasury bills. As the treasury bills mature, we will be refinancing them into dollars. $3billion worth of treasury bills will be refinanced into dollars. So as the naira treasury bills mature, we will be issuing dollar instruments. We are not increasing our borrowing, we are simply restructuring. Instead of borrowing naira, we are borrowing dollars,” she said.

According to her, the advantages are two folds. One is cost reduction. “The average rate at which we borrow internationally is at 7% whereas our treasury bills, we are paying between 13 and 18.5 percent. We are almost halving the cost of borrowing and it is to try and relieve pressure on debt service. As you know, our debt service is very high and one of the ways to try and do that is to refinance.

“The second thing is that we will be spreading the maturity profile of the debt. All our treasury bills mature maximum of 364days. We will be taking that borrowing out for up to three years, in the expectation that as the economy recovers and grows, we will be in a much better position to repay, instead of just rolling over the debt, just as we are doing at the moment.

“The $3billion is approximately N900billion , which we will not take from the domestic market. This will create room for the private sector to go in”, she said, adding that “issuance would commence when the National Assembly resumes, we will need their resolution to be able to do this.
“As soon as that is done, we have already negotiated with the various lenders and they are ready to do this.”

Briefing newsmen on the MTEF 2018-2020 approved by the FEC Budget and National Planning Minister, Udo Udoma, told reporters that the “highlights of it is that we are committed to achieving a 7% growth rate by 2020 in accordance with the economic recovery and growth plan.

“In terms of the trajectory of getting to the 7% growth, we have approved a slightly different trajectory in the sense that by next year, our growth target will be 3.5% and in 2019 it will be 4.5% growth rate and in 2020 of course 7% growth rate.

“In terms of crude oil production, our projection for next year is 2.3m b/d. We expect it to be broken down as 1.8m b/d regular crude and then 500k b/d in terms of condensates and the price that we projected for next year is $45 a barrel.

“We are also committed to exploring ways of raising additional revenue, so as to reduce the debt service to revenue ratio”.

Udoma explained that with respect to the exchange rate, it is as indicated by Central Bank – N305.

FEC also approved the National Information Communication Technology (ICT) infrastructure backbone project, popularly called NIT2 and domiciled within the Galaxy Backbone limited.

The minister, Adebayo Shittu, explained that it is the Federal Government owned agency which engages in service wide connectivity of all government offices, MDAs across the country.

“By today’s approval, the ministry of finance would enter negotiations for the full implementation of the funding with us. The funding will cost $328 million, approximately N100 billion. When concluded, it will not only cover the entire MDAs, it will be enough for commercialisation to the private sector, particularly GSM companies and other ICT industry. So we know Nigeria will be making a lot of money from this facility when completed” he explained.

Source: BusinessDay

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