Adeosun: We’ll Utilise Govt Spending Power to Stimulate Unprecedented Investment Drive
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What are the terms of the Eurobond? Why is it better than domestic borrowing? Or borrowing from other external sources like the World Bank or China?
We have borrowed US$1 billion over a 15-year period, with an annual coupon of 7.875 per cent.
That compares to an average naira borrowing rate of 15 per cent. The international capital markets are a key source of capital for us and our sovereign issuance provides a key benchmark for corporate borrowers looking to tap the ICM. Ultimately, we want to achieve an optimal mix of borrowing from the ICM and other external sources, including concessional funding from the World Bank and China, as part of the 2017 budget process.
What does this mean for them an on the street? Does this make his life any easier? We know that the state of the economy is creating challenges for people across the country. Inflation is high and so prices are rising. That’s why we have been working to ensure our social intervention programmes are prioritised, and we have already started the conditional payments programme.
But we also know that the reason we are in this situation is because we have not taken the hard decisions to re-structure our economy and we must do so now, if we are going to offer the prospect of long-term improvement in quality of life for all Nigerians.
How can the government raise further foreign debt given the current challenges with foreign exchange liquidity?
The simple reality is that international debt is considerably cheaper than domestic debt and while we extensively utilise domestic debt instruments, we need longer term and cheaper debt to allocate to infrastructure spending. That is available from international sources, and we are seeking to maximise the tenure and minimise the cost of this debt so we get the best deal for Nigeria.
Why has it taken so long for the government to raise the Euro bond? The Eurobond programme was approved as part of the 2016 budget, but that process began late, with final budget approval only delivered in May 2016.
We’ve extended the 2016 budget spending cycle through to the end of March 2017.
The Eurobond, and the AfDB loan we secured late last year, are allocated to capital projects identified in that budget.
Is this the end of borrowing, or should we expect more?
The government’s debt strategy has been well defined and approved by the National Assembly. We are focused on re-balancing our debt profile to ensure we have longer term debt that can be used to fund infrastructure development.
You can expect to see us continue to raise international funds over the coming two years as we work towards an optimal debt profile.
Can we afford that level of debt? Yes. We have one of the lowest debt-to -GDP ratios amongst emerging economies. We have the headroom to borrow, but we must not be complacent. We must ensure that we are rapidly increasing government revenue at the same time to give us enhanced resources to deliver growth. How are you going to increase revenue generation then?
We know we have to expand the tax base. Nigeria’s tax contribution to GDP is only 6 per cent, that’s one of the lowest anywhere in the world and reflects decades of the population’s unwillingness to contribute to government revenue, often because they don’t believe the money will be spent appropriately, or for their own good.
That is the situation we have to change, and it is why we spent so much of 2016 re-structuring the way government collects, allocates and spends money. We have to build confidence in that process, if we are to attract the kind of tax base that can deliver increased government revenue.
We believe that if we show Nigerians things can be done differently, then we can rebuild the social contract with citizens to pay their fair share of taxes. We are already beginning to deliver on this, with a focus on improved customs collections, including migration to a single window (with support from the NSIA) and simultaneously strengthening controls in SOEs.