Adeosun: FG Not Borrowing but Refinancing Existing Debts

• Reiterates debt-to-GDP within approved limit

Ndubuisi Francis and Udora Orizu in Abuja

The Minister of Finance, Mrs. Kemi Adeosun, has explained that the federal government is not desirous of borrowing fresh loans, but seeking to refinance what is known as legacy or inherited debts.

Her explanation was sequel to reactions trailing the request by the executive arm of government to the National Assembly seeking approval of the sum of $5.5 billion to help finance the 2017 Budget.

The minister, who featured on an Arise TV programme, the broadcast arm of THISDAY Newspapers, said the APC-led government would channel $3 billion of the $5.5 billion into refinancing inherited debts from the previous administration.

She stated: “Let me explain the $5.5 billion borrowing because there have been some misrepresentations in the media in the last few weeks. The first component of $2.5 billion represents new external borrowing provided for in the 2017 Appropriation Act to part finance the deficit in that budget.

“The borrowing will enable the country to bridge the gap in the 2017 Budget currently facing liquidity problem to finance some capital projects.”

She added: “For the second component, we are refinancing existing domestic debt with the $3 billion external borrowing. This is purely a portfolio restructuring activity that will not result in an increase in the public debt.
“What we are simply doing is moving that debt from owing naira to owing dollars, but because it’s an external borrowing, we have to go back to the National Assembly for approval.

Adeosun added: “We are not actually asking for $5.5 billion of new money. It’s $2.5 billion, which is in the 2017 Budget. The $3 billion is to refinance the debt that we inherited. One of the problems that we have with debt- service-to-revenue ratio is that the majority of our debt is very short-dated and so what we are doing is rather than paying off, which is compounding the interest, what we are doing is taking 25 per cent (about N3 billion worth of treasury bills to dollars and taking it long- term).

“What that means is rather than the interest being paid every 90 days, interest will be paid once a year; so we are being more realistic. We don’t need an overdraft; we need a loan. Of course, as you know, market surveys are more favourable to us. International lending rates are much lower and favourable than domestic.”

The minister stressed: “So, there is an advantage to our debt service by so doing. What we are doing is say look we are coming out of this market and creating room for the private sector to come in.”

Explaining the inherent advantages of the debt refinancing option, Adeosun noted that rather than owing naira, the debt would be in dollars, which would lead to an inflow of $3 billion into the foreign reserves.

“We are simply saying rather than owing naira, we are going to owe dollars and as I explained to you, the three impacts are: One, you are getting inflows of $3 billion into your reserves; you lower your cost of servicing that debt because the foreign debt is cheaper than the naira debt; and the third is you create room for the private sector to come in in order to drive a wider economy,” she said.

According to her: “Government is saying let’s try and make concerted efforts to bring down interest rates by refinancing some of these naira debts into external markets.”

On what the executive arm of government would do should the legislature turn down the request for the $5.5 billion loan, the minister said: “The legislature understands it and of course we are interfacing with them, it’s a healthy debate; it’s good that we are talking about it.”

“This debate that we are having now is healthy and legitimate, it’s good for the nation. But it’s going to be driven by the fact: We are borrowing to finance capital projects in the budget. Those capital projects will unlock sectors of the economy.

“Back in 2013 to 2015, we borrowed to pay salaries but when we came in, we said no we can’t continue like this; we need to add some more so that we can do some capital projects.

” If all we do is to pay salaries, then we will never grow. If we don’t fix power, we can’t grow, if we can’t fix roads and housing, we can’t grow. So we said let us create some room to grow the economy and do capital investments. We did N1.3 trillion last year of capital projects and we hope to do the same this year and when you do it well it’s going to be there for the next 30 to 40 years.

“These are the levers that will drive down inflation and create jobs for Nigerians in the long run. So it is necessary we understand that our biggest problem is debts that we inherited. Out of this $5.5 billion, we didn’t incur three billion; so the question we should be asking is what was the money used for, where are the projects? But that’s in the past.”

She reassured Nigerians that the $5.5 billion foreign borrowing was consistent with Nigeria’s debt management strategy, which main objective was to increase external financing with a view to rebalancing the public debt portfolio in favour of long-term external financing.

Adeosun said: “Nigeria’s debt to Gross Domestic Product (GDP) currently stands at 17.76 per cent and compares favourably to all its peers. The debt to GDP ratio for Ghana is 67.5 per cent, Egypt is 92.3 per cent, South Africa (52 per cent), Germany (68.3 per cent) and United Kingdom (89.3 per cent).

“Nigeria’s debt to GDP ratio is still within a reasonable threshold. This administration will continue to pursue a prudent debt strategy that is tied to a gross capital formation. This will be attained by driving capital expenditure in our ailing infrastructure, which will, in turn, unlock productivity and create the much-needed jobs and growth.”

On the 2018 budget parameters, which many had described as quite ambitious, the minister said Nigeria had the right to be ambitious.

“I think Nigeria has the right to be ambitious; with our population, we got to be ambitious. We can’t afford not to be. Our population grows three per cent a year, so any economic growth below the increasing population means that people are progressively getting poorer,” said.

She added: “What is important is that we got to make sure that we deliver on those targets. I’m not looking at oil price, what I’m looking at is the revenue. If we get people and companies paying the right taxes, then we won’t be talking about borrowing and even a budget of even bigger size and that is what Nigeria needs. If we want to provide schools, hospitals and roads for our people, we need to spend more, not less.”