(Sundiata Post) – Debt Management Office (DMO) at the weekend said Federal Government’s new debt restructuring would not increase the country’s debt stock because it was not a new borrowing.
Patience Oniha, Director General, DMO, told newsmen in Lagos that it was simply a way of converting some naira debts into dollars. Oniha believes that the instrument will increase the nation’s external reserves because when the dollar proceeds come, it goes straight to the central bank as banker to the Federal Government.
The apex bank will then give out naira equivalent in order to redeem the treasury bills. “We are going to borrow the $3 billion for a longer term. They will be longer tenured instrument and at a lower cost. When treasury bills are issued the auction notice is in the public domain. So, treasury bills is issued for a tenure 364 days maximum and discount rate is about 18 per cent to government when you compare that with the rate of 6 to 7 per cent of borrowing in the international market, you realise that there is a huge savings of 11 to 12 per cent that is what we are going to take advantage of,” Oniha told journalists in Lagos.
The Federal Executive Council (FEC) has approved the refinancing of part of the country’s domestic debt through external borrowing. Minister of finance, Kemi Adeosun, who disclosed this after the FEC meeting, allayed fears of increased borrowing, insisting that instead of borrowing naira, “we are now borrowing dollars and at a cheaper rate.”
The approval followed a proposal by the DMO for the refinancing of part of the country’s domestic debts, particularly Nigerian Treasury Bills (NTBs) through the borrowing of $3 billion
The move is informed by the lower dollar interest rates in the International Capital Market (ICM), with Nigeria expected to borrow at a rate not higher than 7 per cent, while issuances of the NTBs in the domestic market are at rates as high as 18.53 percent, which means that external borrowing is cheaper by about 12 per cent.
Analysts agree that the implementation of the refinancing will result in substantial cost savings for the FGN in debt service costs. Besides reducing the cost of borrowing, the $3 billion is expected to be raised for a tenor of up to 15 years, which is very long compared to the maximum tenor of 364 days for NTBs. This move will effectively extend the tenor of the government’s debt portfolio. The longer tenor enables the Government to repay at a time when the economy would be stronger and more diversified, to meet the obligations. (BusinessDay)