Why we are refinancing local debts with $3bn – DMO

Why we are refinancing local debts with $3bn – DMO
August 12 15:27 2017

The Debt Management Office has given ressons why it is taken steps to refinance Federal Government’s maturing local debts with $3bn external borrowing.

The DMO said in a statement on Friday that the step will not only crash the rate of domestic borrowing but also allow some borrowing space to the private sector.

The DMO said borrowing from foreign sources to refinance the local debts would also allow the government time to repay the loans when the economy must have fully recovered from recession as well as when the economy must have been diversified.

The Minister of Finance, Mrs. Kemi Adeosun, had shortly after the Federal Executive Council meeting in Abuja on Wednesday announced the plan to borrow $3bn from external sources to refinance local debt of $3bn.

The approval by FEC followed a proposal by the DMO for the refinancing of part of the country’s domestic debts, particularly Nigerian Treasury Bills, through the borrowing of $3bn.

The DMO said the move was informed by the lower dollar interest rates in the International Capital Market.

It added that Nigeria was expected to borrow at a rate not higher than seven per cent while issuances of the NTBs in the domestic market were at rates as high as 18.53 per cent.

According to the DMO, external borrowing is cheaper by about 12 per cent and will result in substantial cost savings for the FGN in debt service costs.

“Besides reducing the cost of borrowing, the $3bn 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 the 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.

“The reduction in the level of the FGN’s borrowing from the domestic market will result in a reduction in domestic interest rates and free up borrowing space in the economy, particularly for private sector borrowers.

“The $3bn from the refinancing will also represent an injection of foreign exchange into the economy which will boost the country’s external reserves,” the statement read in part.

The approval of the National Assembly will however be needed for the proposed refinancing before implementation in line with the Debt Management Office Act 2003.