$2.5bn external loan won’t increase Nigeria’s debt profile - DMO

The planned external financing of $2.50 billion is for the refinancing of maturing domestic debt obligations of the Federal Government, and therefore it will not lead to additional debt profile of the country, the Debt Management Office has said.

In a statement yesterday, DMO explained that the external loan is not a new or incremental debt because it will not lead to an increase in the public debt stock.

“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 office said 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.

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 16% to about 13.5%.