The Federal
Executive Council, FEC, on Wednesday approved the refinancing of the country’s
domestic debts into treasury bills worth $3 billion as part of the overall
strategy of government to reduce the cost of borrowing.
The Minister
of Finance, Kemi Adeosun, gave the indication while addressing State House
Correspondents on the FEC meeting presided by Acting President Yemi Osinbajo.
According to
her, the approval was derived from a memo her ministry presented to FEC to
enable the federal government restructure its debt portfolio.
“The memo
that I presented and was approved by council was part of our efforts to
restructure our debt portfolio.
“We got
approval in June that we would restructure our debt profile; we would borrow
less in Naira and more in foreign currency because it is cheaper and also
because we want to prevent crowding out the private sector.
“We want to
create room for the private sector to be able to borrow so they can grow and
create jobs.
“So as part
of that, we sought approval and that was granted for us to refinance treasury
bills.
“As treasury
bills mature we will be refinancing them into dollars.
“Up to $3
billion worth of treasury bills will be refinanced into dollars.
“As the
Naira treasury bills mature, we will be issuing dollar instruments.
“So, we are
not increasing our borrowings; we simply are restructuring instead of borrowing
naira we are bearing dollars.’’
The minister
noted that the measure had the advantage of reducing cost of borrowing.
She noted
that the average rate that the nation borrowed internationally did not exceed
seven per cent, whereas in the treasury bills, it was between 13.6 per cent and
18.5 per cent.
Mrs. Adeosun
said the country was almost reducing by half the cost of borrowing which was
trying to relieve the pressure on debt service.
She recalled
the controversy that the debt service of the country was very high, adding that
the refinancing was to relieve the debt service.
She also
said that by the measure, government would be extending the maturity profile of
the debt.
According to
her, the country’s treasury bills mature in maximum of 364 days while the
borrowing will be taken out to up to three years.
She said
that the expectation was that when the economy recovered, the country would be
in a much better position to repay instead of just rolling over the debt as was
being done at the moment.
The minister
said that reducing government borrowing by $3 billion would create more rooms
for banks to lend to the private sector.
“Hopefully
that will also create some downward pressure on interest rates.
“We won’t be
borrowing as much in Nigeria and hopefully that will also begin to put pressure
on interest rate which we all agree has to come down,’’ she added.
Mrs. Adeosun
explained that the government would not issue dollar denominated treasury bills
but to issue bonds in the international capital market for the matured naira
denominated treasury bills.
“Our actual
cost of borrowing is actually below seven per cent while the Treasury Bills we
are paying up to 18 per cent.
“What we are
simply doing is substituting the maturing naira debts with cheaper dollar
denominated bills.
“On the
impact on the naira, it is actually positive because what it means is
effectively $3 billion will be coming in to our foreign reserves,’’ the
minister stated.
Minister of Budget and National Planning
Senator Udoma Udo Udoma addressing the Management Staff during assumption of Office
at Budget And National Planning
Also, the
Minister of Budget and National Planning, Udoma Udoma, said FEC approved the
Medium Term Expenditure Framework (MTEF) 2017 to 2020 and fiscal strategy
paper.
Mr. Udoma
said in the past weeks, government was having consultations with the governors,
public and members of the National Assembly on MTEF.
He said the
highlight of the approval was that the government was committed to achieving a
seven per cent growth rate by the end of the three-year plan in accordance with
the economic recovery and growth plan.
Mr. Udoma
said that the trajectory of getting to seven per cent was that the target for
2018 would be 3.5 per cent growth rate, 4.5 per cent in 2019 and 7 per cent in
2020.
He said
there was a projection of 2.3 million barrels per day of oil production for
2018 made up of 1.8 million barrels per day (bpd) with regular crude and
500,000 bpd of condensate and crude oil price projection of $45 dollars.
“We are also
committed in the MTEF FSP to explore ways of raising additional revenues to
reduce the debt service to revenue ratio.
“It is part
of the policy of this government to make sure that out borrowing is controlled
and to keep a reasonable debt service to revenue ratio which will help to bring
down interest rate,” he explained.
(NAN)
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