DMO Clarifies Position On USD5.5Bn External Capital Raising By Orjime Moese, Abuja

The Debt Management Office (DMO), has clarified the plans of the Federal Government to source for capital from the International Financial Markets.

In a statement issued yesterday and made available to LEADERSHIP Weekend, the DMO stated that the proposed USD5.5 billion comprises of two components which are: USD2.5 billion new borrowing and USD3
billion for refinancing.

The statement said 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,” the statement said.

On the USD3 billion, the DMO stated that it 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 p.a.

DMO said the benefits of the External Capital Raising
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.

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