In the latest news in Nigeria now, the Federal Government is seeking to raise funds through external borrowing. News just in indicates that the Nigerian President wrote to the National Assembly seeking permission to borrow $5.5 billion in two phases. The Nigeria Debt Management Office said that the move was in the right direction and advised that the Nigeria National Assembly should not turn down the request by the head of state to borrow the amount.
In his letter, president Buhari indicated that $2.5 billion would go into funding the appropriation Act of 2017 and will be used in funding infrastructure projects in the country. The other $3 billion will be used for repayment of the country’s domestic debt. There have been clear clarifications issued by the DMO office on why it is important to fund the deficit through borrowing from Euro Bond.
Clarifications Issued On Borrowing of the $5.5 Billion
The DMO has come out to strongly defend the decision by the Nigerian federal government to borrow the funds. Through a recent press briefing, the DMO sought to clarify how president Buhari`s administration intends to use the funds. This was
Funding of 2017 Appropriation Act
Through the press statement, the DMO representative notified the general public that the 2017 Appropriation act allowed the Government to borrow $3.5 billion from the external sources and this was at a rate of 305 Nigerian nairas to the dollar. This was agreed in June 2017 and the precise external borrowing source will be a Eurobond issuance. These amounts will be used in the development of various roads across the nation. There will also be the development of rail projects that were passed by the national assembly in 2017, and other key projects which will include construction of a second runway at the Nnamdi-Azikiwe International Airport.
Settlement of Internal Debts
The Government plans to repay the domestic debt using $3billion which will be from the external borrowing. The major clarification on this indicated that this will not have a negative implication on the national debt since this will be borrowing from one source to repay the other source. Therefore this should not be a cause of concern to the public. This borrowing which can also be termed as refinancing is a risk to the economy and can be attributed to the short-term nature of the Nigerian Treasury Bills and the high-interest rates.
According to the DMO, some of the benefits of raising external funds include reducing the debt service which he argues that the dollar will be lent at an interest rate of 7% which is lower than the internal borrowing rate of 17%. Secondly, there will be an increased stability in the debt since external borrowing will be long-term as compared to the domestic borrowing which is a short time venture.
This borrowing will go through once the National Assembly passes the funding bill and the president ascents to the same. Therefore, the domestic lenders will soon be repaid, and the infrastructure will be improved.