9 February 2018

Nigeria: DMO - Proceeds of $2.5bn Eurobond Will Reduce Debt Service-to-Revenue Ratio

Abuja — The planned $2.50billion Eurobond will help to reduce Nigeria's debt service-to-revenue ratio, the Debt Management Office (DMO) has said.

Until last December when the nation's debt-service-to-revenue ratio reportedly recorded a new decline to 45 per cent, it had peaked at about 66 per cent.

The Minister of Finance, Mrs. Kemi Adeosun had on Wednesday disclosed that the proposed $2.5 billion Eurobond already approved by the National Assembly would yield N762.5 billion proceeds for the refinancing of treasury bills.

The DMO in a statement Thursday affirmed that the proceeds would go into the refinancing of maturing domestic debt obligations of the federal government, adding: "It is not a new or incremental debt because it will not lead to an increase in the public debt stock."

The agency stressed that the purpose is to rebalance the federal government's debt portfolio by increasing the external component while reducing the domestic component.

This, it noted, is in line with Nigeria's Debt Management Strategy, which has a target of a 40:60 ratio for external to domestic debt, from the current position of about 25:75, respectively.

According to the DMO, the proceeds of the planned USD2.50 billion will be converted to Naira and be used to redeem relatively more expensive domestic debt.

"This is expected to save about N64 billion per annum in interest cost which will help to reduce the debt service/revenue ratio and free up the fiscal space for other priorities of government," it added.

In December 2017, the federal government redeemed matured Nigerian Treasury Bills (NTBs) with proceeds of USD500 million Eurobonds issued in November 2017.

Apart from saving about N17 billion per annum in debt service cost, it was said to have also triggered 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 pointed out: "The debt substitution will 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 will increase the foreign exchange earning capacity of the economy."


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