FG to borrow $2.7bn foreign loan in 2019

The federal government will borrow $2.7bn (N824.82bn)from foreign sources in 2019, the Debt Management Office, has said.

In a statement made available to our correspondent in Abuja on Wednesday, the DMO said that the first priority would be to borrow from multilateral and bilateral sources. The balance, it said, would be borrowed from commercial sources such as Eurobonds.

The DMO issued the statement to clarify a report which said it had ruled out the issuance of Eurobonds in 2019.

The DMO said the plan to borrow $2.7bn from external sources was contained in the 2019 Appropriation Bill, which was recently signed into law by President Muhammadu Buhari.

The statement said in part, “For the records, the 2019 Appropriation Act provides for new external borrowing of N824.82bn (the equivalent of $2.7bn at USD/N305).

“Consistent with the Debt Management Strategy of reducing debt service cost, the plan for raising the new external borrowing is to first access cheaper funding from multilateral and bilateral lenders as may be available.

“Thereafter, any balance will be raised from commercial sources which may include securities issuance such as Eurobonds in the International Capital Market.”

The DMO added that it would continue to focus on its objective of reducing debt service costs by emphasising borrowing from concessional sources while considering Eurobonds and other commercial sources as secondary options.

The country’s debt profile grew from N12.12tn as of June 30, 2015, to N24.39tn as of December 31, 2018.

This means that within a period of three and a half years or 42 months, the country’s debt profile rose by N12.27tn. This reflects 101.23 per cent increase in the country’s debt profile within the period of time.

Much of the debts belong to the Federal Government whose debt profile as of December 31, 2018, stood at N19.23tn. On the other hand, the debt profile of the subnational governments – the 36 states of the federation and the Federal Capital Territory – stood at N5.15tn.

This means that the 78.87 per cent of the public total debt as of December 31, 2018, belongs to the Federal Government while the subnational governments had a proportion of 21.13 per cent.

The external debt stock of both the states and the Federal Government rose from N2.03tn as of June 2015 to N7.76tn as of December 2018.

This means that the external debt of the country rose by N5.73tn. This reflects 282.27 per cent increase in the country’s external debt profile.

Although the status of the Federal Government’s component of the external debt as of June 2015 could not be ascertained, much of the growth in the country’s external debt profile occurred at the federal level.

Of the total public external debt profile as of December 2018, the Federal Government had a share of N6.47tn or 83.38 per cent while the states and the FCT had a share of N1.3tn or 16.62 per cent.

The growth in the external debt commitment within the period is in consonance with the DMO’s which targets to raise foreign debt component to 40 per cent of total debt profile.

This is intended to take advantage of the lesser cost of borrowing from foreign sources, although experts had warned that there were some foreign exchange risks inherent in this strategy.

The Debt Management Office also believes that this strategy gives more room to private sector investors to explore the local debt market instead of allowing the government to dominate the market with the inherent possibility of increasing the rate of borrowing.

On the other hand, the federal government’s domestic debt commitment increased from N8.4tn as of June 2015 to N12.77tn. This shows a difference of N4.37tn or an increase of 52.02 per cent within the period under review.

The domestic debt of the subnational government increased from N1.69tn as of June 2015 to N3.85tn as of December 31, 2018. This shows an increase of N2.16tn, reflecting 127.81 per cent increase within a period of three and a half years.

Overall, total domestic debt rose from N10.09tn as of June 30, 2015, to N16.63tn as of December 31, 2018. This shows a difference of N6.54tn or an increase of 64.82 per cent.