The planned external financing of $2.50 billion Eurobond in the first quarter of this year is for the refinancing of maturing domestic debt obligations of the Federal Government, the Debt Management Office (DMO) has said. Specifically, the debt office said: “It is not a new or incremental debt because it will not lead to an increase in the public debt stock.”
In a statement obtained by New Telegraph, the DMO explained that the purpose of the proposed Eurobond sale is to rebalance the Federal Government’s debt portfolio by increasing the external component while reducing the domestic component in line with the country’s debt management strategy. The DMO had in 2016 announced a new debt management strategy for the country, which has a target of a 40:60 ratio for external to domestic debt from the current position of about 25:75, respectively. According to the debt office: “The proceeds of the planned $2.50 billion will be converted to naira and be 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.” It noted that in December 2017, the Government redeemed matured Nigerian Treasury Bills (NTBs) with proceeds of $500 million Eurobonds issued in November 2017. “Apart from saving 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 16per cent to about 13.5 per cent.
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 stated. The debt office also emphasised that the debt substitution will 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.
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