President Muhammadu Buhari has asked the National Assembly to approve two external loans put at $5.5 billion. This request is coming despite the fact that the terms and conditions for such loans appear to be hidden and unknown.
The first loan of $2.5 billion, in a letter from Buhari, read by Senate President Bukola Saraki, on the floor of the Senate on Tuesday, is for the financing of the deficit in the 2017 Budget and capital expenditure projects in the same document.
The second loan of $3.0 billion is for the refinancing of maturing domestic debt obligations through the issuance of Eurobonds or a loan syndication.
The President informed the legislators that the terms and conditions of the loans would only be known when they are matured for collection.
“With respect to the Terms and Conditions of the proposed External Borrowings, the Senate may wish to note that being market based transactions, the terms and conditions of the borrowings can only be determined at the point of issuance of finalisation based on prevailing market conditions in the International Capital Market (l.C.M.),” Buhari wrote in the letter.
The request generated initial controversy on the floor of the Senate, as lawmakers protested against the earlier impression that the request had been pending before the Senate and that its delay in approving it had caused a major hitch in the implementation of the 2017 budget.
Justifying his loan request of $2.5 billion, President Buhari told the Senate to “note that in order to implement the External Borrowrng approved by the National Assembly in the 2017 Appropriation Act, the FGN issued a USD3OO million Diaspora Bond in the lnternatlonal Capital Market (ICM) in June 2017. The balance of the 2017 External Borrowing, in the sum USD3.2 billion is planned to be partially sourced from issuance in the ICM of USD2.5 billion through Eurobonds or a combination of Eurobonds and Diaspora Bonds, while USD700 million 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.
Explaining the main reason for this segment of the loans, the President said: “The Senate may wish to note that the proceeds from the proposed issuance of Eurobonds (and Diaspora Bond) in the lCM would be used to finance the deficit in the 2017 Appropriation Act and provide funding for the capital projects in the Budget.”
He listed the projects which include the Mambilla Hydropower Project, Construction of a Second Runway at the Nnamdi Azikiwe international Airport, counterpart funding for Rail Projects and the Construction of the Bode-Bonny Road, with a bridge across the Opobo Channel.
On the $3 billion for Re-flnancing of Domestic Debts, the President said: “In addition to the implementation of the External Borrowing approved in the 2017 Appropriation Act, in order to reduce debt service levels and lengthen the tenor profile of the Debt Stock, the FGN seeks to substitute maturing Domestic Debt with less expensive long term External Debt.
According to him, “the FGN plans to source USD3.0 billion through the issuance of Eurobonds in the lCM and/or loan syndication by Banks. as approved by the Federal Executive Council at its meeting of August 9, 2017.
“It is important to note that the proposed sourcing of USDSD billion from external sources to re-tinance maturing Domestic Debt 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 Cost.”
Listing what he believed could be the benefit of the loan, Buhari stated: “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.”
The President drew the attention of the Senate to the fact that in the 2017 Appropriation Act, Debt Service at N1.663 trillion represents 32.73 per cent of the FGN’s Total Expenditure, which makes it important to take urgent steps to reduce debt service costs.
Failure to rebalance the FGN’s debt portfolio through substitution of Domestic Debt with less expensive long term External Debt, will continue to expose the country to the risk of high debt service-to revenue ratio, thereby limiting the ability of the government to execute capita projects and other priority expenditure.
By Ehisuan Odia …
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