President Muhammadu Buhari has written to both chambers of the National Assembly, seeking approval for $5.5bn external borrowing to be used to finance the 2017 Appropriation Act.
In the letter dated October 4, 2017, which President of the Senate, Bukola Saraki; and Speaker of the House of Representatives, Yakubu Dogara, read in the chambers at their plenaries on Tuesday, Buhari referred the Senate to the 2017 budget, which has a deficit of N2.356tn and provision for new borrowing of N2.321tn.
He said the Act also provided for domestic borrowing of N1.254tn and external borrowing of N1.067tn (about $3.5bn).
The letter read in part, “Accordingly, the Senate is requested to kindly approve the following external borrowings: Issuance of $2.5bn in the international capital market through Eurobonds, or a combination of Eurobonds and Diaspora bonds for the financing of the Federal Government of Nigeria’s 2017 Appropriation Act and capital expenditure projects in the Act.
“Issuance of Eurobond in the ICM and/or loans syndication by the banks in the sum of $3bn for refinancing of maturing domestic debts obligations of the Federal Government of Nigeria, while looking forward to the timely approval of the National Assembly to enable Nigerians to take advantage of these opportunities for funding.”
On the issuance of $2.5bn for financing the Appropriation Act, Buhari noted that in order to implement the external borrowing plan approved by the National Assembly in the 2017 Appropriation Act, the Federal Government issued a $300m Diaspora Bond in the international capital market in June this year.
He stated, “The balance of the 2017 external borrowing, in the sum of $3.2bn, is planned to be partially sourced from issuances in the ICM of $2.5bn through Eurobonds or a combination of Eurobonds and Diaspora Bonds, while $700m is proposed to be raised from multilateral sources.
“It should be noted that the intention is to issue the Eurobonds first, with the objective of raising all the funds through Eurobonds, and that Diaspora Bonds will only be issued where the full amount cannot be raised through Eurobonds.”
Buhari said while the borrowed funds would be used to finance the deficit in the 2017 budget, they would provide funding for the capital projects in the budget, including the Mambilla hydropower project; construction of a second runway at the Nnamdi Azikiwe International Airport, Abuja; counterpart funding for rail projects; and the construction of the Bodo-Bonny road, with a bridge across the Opobo Channel.
The President further explained that in addition to the implementation of the approved external borrowing plan and in order to reduce debt service levels and lengthen the tenor profile of the debt stock, the Federal Government sought to substitute maturing domestic debts with less expensive long-term external debts.
“The Federal Government of Nigeria plans to source $3bn through the issuance of Eurobonds in the ICM and/or loan syndication by banks, as approved by the Federal Executive Council at its meeting of August 9, 2017,” he said.
According to him, sourcing for the $3bn will not lead to an increase in the public debt portfolio, “because the debt already exists, albeit in the form of high interest short-term domestic debt.”
“Rather, the substitution of domestic debt with relatively cheaper and long-term external debt will lead to a significant decrease in debt service costs. This proposed re-financing of domestic debt through external debt will also achieve more stability in the debt stock, while also creating more borrowing space in the domestic market for the private sector,” Buhari added.
With respect to the terms and conditions of the proposed external borrowings, the President noted that being market-based transactions, the terms and conditions could only be determined at the point of issuance or finalisation based on prevailing market conditions in the ICM.
“The Federal Ministry of Finance, the Debt Management Office and the Federal Government’s appointed transaction parties for the proposed external borrowings will work assiduously within the context of the market to secure the best terms and conditions for the Federal Republic of Nigeria,” Buhari added.