DMO says ready for next phase of local debt refinancing

The Debt Management Office explained on Thursday that the $2.5bn planned external financing which would be used to refinance maturing domestic debt obligations of the Federal Government will not lead to an increase in the public debt stock since it is not a new or incremental debt.

“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 a 40:60 ratio for external to domestic debt from the current position of about 25:75, respectively,” the DMO said in a mailed note to BusinessDay.

The clarifications came just a day after finance minister Kemi Adeosun announced the appointment of a consortium of banks including Citi Group, Standard Chartered, StanbicIBTC, Whitten-Case and African Practice to handle the $2.5b Eurobond issuance.

The Debt office said the bond proceeds would be converted to the local currency- the naira- and then used to redeem relatively more expensive domestic debt.

“This is expected to save about N64 billion 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,” the DMO stated.

Nigerian government had, in December 2017, redeemed matured Nigerian Treasury Bills (NTBs) with proceeds of $500 million Eurobonds issued in November 2017.

Apart from savings of about N17 billion per annum in debt service cost, there was also a significant drop in the Bid Rates at the Auctions of both NTBs and FGN Bonds in December 2017 and January 2018 from a range of 16% to about 13.5%.

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

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

Minister Adeosun, on Wednesday, while speaking on the utilisation of the Proceeds of the $500 million issued in November 2017, disclosed that the proceeds of about N162.50 billion were used to redeem Nigerian Treasury Bills (NTBs) which matured last December.

 

Onyinye Nwachukwu, Abuja