The federal government has approved the refinancing of the country’s domestic debt through external borrowing.
Minister of Finance, Mrs. Kemi Adeosun, who disclosed this 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 Debt Management Office (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 cost effective rate of the US Dollar interest rates in the International Capital Market (ICM), which is at 7%, while the domestic market is pegged at 18.55%, leaving an interest rate differential of 12% lower. The implementation of the refinancing is expected to result in substantial cost savings for the FGN in debt service costs.
Besides reducing the cost of borrowing, the fresh injection of capital 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 Nigeria Treasury Bills.
It is expected that the 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 would result in a reduction in domestic interest rates and free up borrowing space in the economy, particularly for private sector borrowers.
The $3billion from the refinancing will also represent an injection of foreign exchange into the economy which will boost the country’s external reserves.
A circular from the Debt Management Office stated that going by its Establishment Act 2003, the approval of the National Assembly would be obtained for the proposed refinancing before implementation.