$2.5bn Foreign Borrowing’ll Not Increase Total Debt – DMO

Naira
  • $2.5bn Foreign Borrowing’ll Not Increase Total Debt – DMO

The planned borrowing of $2.5bn from foreign sources will not increase the nation’s total debt commitment, the Debt Management Office has assured Nigerians.

The DMO, which gave the assurance in a statement made available to our correspondent in Abuja on Thursday, said the debt would rather save the country N64bn per annum because the money would be used to liquidate some expensive local debts.

According to the agency, the foreign borrowing will not increase the country’s total indebtedness because the proceeds will be used to repay maturing local debts instead of rolling them over on maturity.

The DMO stated, “The planned external financing of $2.5bn is for the refinancing of maturing domestic debt obligations of the Federal Government. It is not a new or incremental debt, because it will not lead to an increase in the public debt stock.

“The purpose is to rebalance the Federal Government’s debt portfolio by increasing the external component, while reducing the domestic component in line with Nigeria’s Debt Management Strategy, which has a target of 40:60 ratio for external to domestic debt from the current position of about 25:75, respectively.

“The proceeds of the planned $2.5bn will be converted to naira and be used to redeem relatively more expensive domestic debts. This is expected to save about N64bn per annum in interest cost, which will help to reduce the debt service/revenue ratio and free up the fiscal space for other priorities of government.”

In December 2017, the government had redeemed matured Nigerian Treasury Bills with proceeds of the $500m Eurobonds issued in November.

The move, according to the DMO, saved the Federal Government about N17bn per annum in debt service costs.

It added that the step also led to a significant drop in the bid rates at the auctions of both the NTBs and FGN Bonds in December 2017 and January 2018 from a range of 16 per cent to about 13.5 per cent.

“This translates to savings for government on new borrowings and reduction of pressure on lending rates in the economy with positive impact on job creation and poverty reduction,” the DMO said.

The agency explained that the debt substitution would also help to lengthen the maturity profile of the nation’s debt portfolio and leave more borrowing space for the private sector to access credit to grow the real sector, including export, which would increase the foreign exchange earning capacity of the economy.

About the Author

Samed Olukoya
Samed Olukoya is the CEO/Founder of investorsking.com, a digital business media, with over 10 years experience as a foreign exchange research analyst and trader.

Be the first to comment on "$2.5bn Foreign Borrowing’ll Not Increase Total Debt – DMO"

Leave a comment

Your email address will not be published.


*