- Why we are phasing $5.5bn foreign borrowing – DMO
The Debt Management Office on Wednesday explained that the Federal Government could not raise $5.5bn as contained in the borrowing plan approved by the National Assembly in a single tranche despite the thirst for it in the market in order to moderate the cost.
The Director-General, DMO, Patience Oniha, who said this in an interview with journalists in Abuja, stated that the oversubscription of the $3bn Eurobond recently issued by the Federal Government was a confirmation of the faith of the international community in the Nigerian economy and policies of the government.
The Eurobond issue recorded about 366.67 per cent subscription as foreign investors staked $11bn on it.
Oniha said, “The demand of over $11bn from international investors is a demonstration of their confidence in the policies and reform initiatives of President Muhammadu Buhari as well as the economic outlook of Nigeria.
“Like those investors, we ourselves can attest to the economic improvements in Nigeria as demonstrated by higher external reserves, stable exchange rate, Gross Domestic Product growth of 1.44 per cent in the third quarter of 2017 and improvement in the ease of doing business.”
Oniha stated that the intention of the government was not to raise the $5.5bn at once but to get the $2.5bn required to support the 2017 budget first, while the $3bn required to refinance local debts would be raised in phases.
From a technical perspective, she added that the government also phased the borrowing in order to moderate the cost in the international capital market by managing the supply of Nigeria’s Eurobonds in the market.
The DMO boss said by raising the funds, the office was fulfilling its mandate in financing budget deficits as provided in annual appropriation Acts to enable budget implementation and the attainment of the government’s economic targets.
She stated, “The $2.5bn is specifically targeted at fulfilling the DMO’s mandate in this regard. On the $3bn for refinancing domestic debt, there are several benefits for the action, one of which is that it will reduce the crowding out of the private sector from the domestic market.
“It also has the potential to bring about a reduction in lending rates, which will make the cost of production of goods and services by the private sector cheaper and more price competitive. Another major benefit of external capital raising is a lower cost of borrowing to the government and a moderation in debt service costs.”
Oniha added, “The other part of the argument about debt becoming a burden is the issue of Nigeria’s revenue base, which at six per cent of the GDP, is not only low but well below that of peer countries. Thankfully, government’s revenue is now being given proper attention.
“The measures to increase revenues are already yielding some results and as this trajectory continues, the need for borrowing is expected to reduce, while debt service will become an increasingly smaller portion of revenue.”