By Babajide Komolafe

Minister of Finance, Mrs. Kemi Adeosun, yesterday, said that the federal government’s debt service obligation would be reduced by N90 billion in 2018 through the Eurobond issuance programme.

Finance Minister, Mrs Kemi ADEOSUN

In a statement titled, ‘Response to Frequently Asked Questions  on Nigeria’s Eurobond’, Adeosun explained that the federal government decided to restructure the nation’s debt profile away from local to foreign component through cheaper cost Eurobond in order to reduce the debt service payments which  accounted for 45 percent of the total  revenue as at third quarter of this year.

According to her the plan is to increase the percentage of foreign borrowing to 40 percent of total debt from 18 percent.

She stated: “Over the last 5 years, Nigeria has been overly focused on domestic debt, which is short term and high cost. This means that we pay too much, and have to regularly refinance existing debt rather than having the security of longer term instruments. You can see this clearly reflected in our debt service to revenue ratio, which at 45 percent as of Third Quarter (Q3) 2017, is higher than we would like.

“Having returned the economy to growth in 2017 and secured a stable and liquid exchange rate regime, we are focused on addressing this issue by diversifying our sources of debt to achieve an optimal balance. So far, we have moved our domestic/international debt ratio from 18:82 to 23:77 and we expect this to improve to circa 27:73 by year end, with an ultimate target of 40:60. This will deliver significant savings in our debt service costs, with provisional estimates demonstrating savings of up to N91 billion in 2018 alone.”

Adeosun explained that out of the $3 billion raised through the recently concluded Eurobond, $2.5 billion will be used to finance capital projects in the 2017 budget while the remaining $500 million will be used for debt service.

She added: “Nigeria has raised a total of $3 billion. The Notes comprise a $1.5 billion 10-year series and a $1.5 billion 30-year series.  The 10-year series will bear interest at a rate of 6.5 percent, while the 30-year series will bear interest at a rate of 7.625 percent.

“The proceeds will be split between 2017 budget capital projects ($2.5 billion) and re-financing some of our short term domestic debt ($500 million). Capital projects under the 2017 budget include road, rail, power and housing projects which are crucial to the delivery of the economic recovery and growth plan.”