DMO: How FG competes with private sector for bank loans

The Director-General of Debt Management Office, Patience Oniha, on Thursday explained how the Federal Government competes with the private sector for loans from the commercial banks.

She said this while justifying the $5.5 billion foreign loan President Muhammadu Buhari is seeking the approval of the Senate for.

According to Oniha, out of Nigeria’s debt current stock of N19 trillion, 77 per cent was from domestic market and were issued through products as Treasury bills, the Federal Government of Nigeria Bonds, the Federal Government Savings Bonds and the recent Sukuk.

She said that the implication of having that large amount in domestic debt “is high debt service because the costs of – meaning interest rates – are high. If the government is so visible and prominent in the local market, it means that we have taken some of the money that should go to the private sector.

“Banks should be able to have large amounts of money to extend to the real sector. If we are not too prominent in the domestic market, there should be more room for banks and other financial institutions to lend to the private sector and, thereby, contributing to economic growth.”

She stated this while representing the Minister of Finance, Mrs. Kemi Adeosun, at a Senate session on Thursday, organised by the Senate Committee on Local and Foreign Debts.

Senate committee, Senator Shehu Sani, had asked her to provide details of the proposed loans, including the rate and tenure.

Also summoned at the session was the Minister of Transportation, Rotimi Amaechi.

On whether the development of the first generation infrastructure in the country was funded with loans, the DMO boss said, “I can remember that the Federal Government issued development loan stocks under the first plan and some are actually yet to mature. Those development loan stocks were what the Federal Government used in the 60s and maybe early 70s. I know that some of them had 20 to 22 years’ maturity. At the time, they appeared to be very long. This is not the first time that the government is borrowing on a long-term basis.”

She further explained that the $5.5 billion foreign loan if approved by the National Assembly will be paid back between
five to 30 years. She said that Nigerians should try and focus more on the long-term benefits of the loans.

She said, “In terms of tenor, from the figures that distinguished senators have reeled out, we have them in various tenors.
What you do is at the time you get to the market and you want to price, you will be more certain about the price. It could be anywhere from five to 30 years.

“On borrowing, when the current generation may not be around at that time (payment completion), the truth is that if we are borrowing in the long term, we are using it to finance capital projects, which are also long-term (projects) and the benefits of those projects are also long-term (benefits).

“I believe that some of the roads and even institutions like some
universities that we see today were built before some of us were born. We should look at it this way; that the benefits are also long-term (benefits).”

In his presentation at the session, Amaechi, said Nigeria has to borrow more to finance ongoing rail projects as the country needs $36 billion to complete the projects.

“What is in this (2017) budget that we are asking for now is Kano-Kaduna and Port Harcourt-Calabar, but the bank that is lending us money will prefer if we ask for Ibadan-Kano so that we can finish the whole stretch from Lagos to Kano,” he said.

Meanwhile, the DMO in a statement on Thursday claimed that $2.5 billion of the proposed external borrowing would be used to finance some projects while $3 billion would be used to refinance some domestic debts.

READ ALSO: We never disagreed with Adeosun on foreign borrowing –World Bank

“The first component of $2.5 billion represents new external borrowing provided for in the 2017 Appropriation Act to part finance the deficit in that budget. It will be recalled that the 2017 Appropriation Act provided for new external borrowing of N1.067 trillion or $3.5 billion at an exchange rate of USD/N305.

“Out of this amount, $300 million has been raised through a Diaspora Bond that was issued in June leaving a balance of $3.2 billion out of which $2.5 billion is to be sourced through a Eurobond issuance.

“The $2.5 billion proposed Eurobond will be used to finance critical road and rail projects included in the 2017 Appropriation Act,” DMO said.

 

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