Borrowing costs: FEC approves domestic debt refinancing into $3bn treasury bills

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.
Finance Minister, Mrs Kemi Adeosun, gave the indication while addressing State House Correspondents on the FEC meeting presided over 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 to 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 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 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.
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.
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.
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.
Udoma said that the trajectory of getting to seven percent 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.