Adeosun: FG’s Revenue and Debt Strategy to Cut Debt Service Cost by N168bn

Ndubuisi Francis in Abuja

The Minister of Finance, Mrs. Kemi Adeosun, disclosed Thursday that the federal government’s current revenue and debt management strategy would mitigate the nation’s debt service risk, culminating in the cutting of debt service cost by about N168 billion per annum.

The federal government is presently seeking the approval of the National Assembly to borrow $5.5 billion from external sources.

Of this amount, $3 billion, which will be raised through either Eurobonds or Diaspora Bonds issues, or a combination of both, is for the refinancing of maturing domestic debt.

The balance of $2.5 billion is to be raised from the World Bank to finance the capital component of the 2017 budget.

In a statement Thursday, Adeosun expressed confidence that the federal government’s revenue and debt management strategy would mitigate the country’s debt service risk and fast-track development.

Explaining the benefits, she said from the $2.5 billion loan, the country would record a savings in debt service cost of N76.375 billion per annum from the borrowing while N91.65 billion per annum would be saved from the $3 billion bond issuance from the international capital market (ICM) for refinancing short-term domestic debt. This would come to a total of N168.025 billion.

She stated: “The proposed refinancing of $3 billion worth of short-term treasury bills into longer tenured international debt is expected to save N91.65 per annum.

“Other benefits of our revenue and debt management strategy include: improvement in foreign reserves as well as reduced domestic debt demand, which will reduce crowding-out of the private sector and support the aspirations of the monetary authorities to bring down interest rates.”

Adeosun, who welcomed the advice of Nigeria’s international development partners, including the International Monetary Fund (IMF), said that the revenue and debt management strategy would lead to a boost in foreign reserves with increased dollar inflow, adding that it would equally reduce the debt burden and reduce risk.

In the statement issued by her media aide, Mr. Oluyinka Akintunde, the finance minister stressed that the strategy would ease crowding out of the private sector and create space for borrowing by the sector.

The minister stated that a key element of the economic reform strategy was the mobilisation of revenue to improve the debt service to revenue ratio.

She said: “This is being undertaken through a number of initiatives including the plugging of leakages and the deployment of technology revenue management.”

Adeosun specifically cited the example of the Health Pay, a pilot cashless revenue project in the health sector, which recorded material increases in revenue.
The ongoing Voluntary Assets and Income Declaration Scheme (VAIDS) is equally expected to impact positively on the level of tax collection, she noted.

Adeosun said: “The difference in our economic strategy is that we are changing the mix of revenue sources available to government from the traditional oil or debt, to a combination of oil, debt and domestic revenue.
“This is a long-term strategic reform which is critical to our future economic growth and in the short-term will enable our debt service to revenue ratio to improve.”

The minister noted that the government was refinancing its inherited debt portfolio, adding that this would lead to significant benefits, particularly a reduction in cost of funds.

The government, according to her, does not see a significant devaluation risk as the implementation of the Economic Recovery Growth Plans (ERGP) reforms, over the medium term, is such that the naira is expected to strengthen.