FG To Refinance Domestic Debts Into $3bn Treasury Bills

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The federal government yesterday approved the refinancing of the country’s domestic debts into treasury bills worth $3billion as part of its overall strategy to reduce the cost of borrowing.
The Minister of Finance, Mrs Kemi Adeosun, gave the hint while addressing State House Correspondents after the Federal Executive Council (FEC) meeting presided over by Acting President Yemi Osinbajo.
Eyes Of Lagos report that, According to her, the approval was derived from a memo her ministry presented to FEC to enable the federal government to restructure its debt portfolio.
She said, “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 who noted that the measure has the advantage of reducing cost of borrowing said the average right 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.
Adeosun added that 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, even as she 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 up to three years.
She said that the expectation is that when the economy recover, the country it will be in a much better position to repay instead of just rolling over the debt as is being done at the moment.
The minister said reducing government borrowing by $3 billion will 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.
Adeosun explained that government will not issue dollar denominated treasury bills but bonds in the international capital market for the matured naira denominated treasury bills.
Her words: “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”.
Also, the Minister of Budget and National Planning, Mr Udoma Udo Udoma, said FEC approved the Medium Term Expenditure Framework (MTEF) 2017 to 2020 and fiscal strategy paper.
The MTEF which is the precursor to the budget itself recommended that the 2018 budget be predicated on oil price benchmark of $45 per barrel and N305 exchange rate to a dollar.
Udoma noted that 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 is that the government is 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.
Udoma explained that the trajectory of getting to seven per cent is that the target for 2018 will be 3.5 per cent growth rate, 4.5 per cent in 2019 and 7 per cent in 2020.
He further noted that there is 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.
He said, “Council today approved a memorandum that was submitted by my ministry and approved the 2018-2020 MTEF. As we know, we have been having extensive consultation in the last few weeks with governors, members of the public, leadership of the National Assembly about the MTEF.
“So, we submitted it and it was approved by council. The highlight of it is that we have committed to achieving a 7% growth rate by 2020 at the end of the three-year plan in accordance with the Economic recovery and growth plan.
“MTEF is based on the economic recovery and growth plan and in terms of the trajectory of getting the 7%, we have approved a slightly different trajectory in the sense that by next year our target 3.5% in 2018, in 2019 it will be 4.5% growth rate and of course in 2020 it will be 7% growth rate”.
“In terms of crude oil production, our estimate projection for next year is 2.3 million barrels per day. We expect it to be broken down to 1.8million barrels per day regular crude and 500 thousand barrels per day in terms of condensate.
“The price we projected for next year is $45. We are also committed in the MTEF to explore ways of raising additional revenue to reduce debt service to revenue ratio. As the Minister of finance said, that is part of the policy of this government to make sure that borrowing is controlled and to make sure to keep a reasonable debt service to revenue ratio which will of course help to bring down interest rates.
“With respect to the exchange rate, it is as indicated by Central Bank – N305. With respect to the target, it is 2.3 million barrels per day.
“NNPC had assured that this country has capacity more than 2.3 million barrels per day. Consequently, we have a lot of constraints. Some of the constraints have to do with cash call investment.
The minister continued: “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”.

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