The Debt Management Office has released a statement explaining the $2.5 billion external financing arrangement.
The agency said the loan is not a new incremental debt.
Read the full statement below.
The proposed move is to help refinance the country's maturing domestic debts and re-balance Federal Government debt portfolio, the Debt Management Office, DMO, said.
It is not a new or incremental debt because it will not lead to an increase in the public debt stock.
The DMO said the refinancing arrangement would involve increasing the external component of the debt portfolio while reducing the domestic in line with the country's Debt Management Strategy.
The strategy is targeted at achieving a 40:60 per cent ratio for external to domestic debt from the current position of about 25:75, respectively.
The DMO said proceeds from the refinancing plan would be converted to Naira and used to redeem relatively more expensive domestic debts.
Government said it was expected to save about N64 billion per annum in interest cost which would help reduce the Debt Service/Revenue ratio and free up the fiscal space for other government priorities.
In December 2017, the federal government redeemed matured Nigerian Treasury Bills (NTBs) with proceeds of $500 million Eurobonds issued in November 2017.
Apart from saving about N17 billion per annum in debt service cost, the DMO said there was also a significant drop in the Bid Rates at the Auctions of both NTBs and FGN Bonds in December 2017 and January 2018 from a range of 16 per cent to about 13.5 per cent.
"This translates to savings for government on new borrowings, reduction of pressure on lending rates in the economy with positive impact on job creation and poverty reduction," the DMO said in a statement on Wednesday.
Besides, the DMO said the debt substitution would also help to lengthen the maturity profile of the portfolio and leave more borrowing space for the private sector to access credit to grow the real sector, including export which would increase the foreign exchange earning capacity of the economy.