ABUJA – President Mohammadu Buhari has applied to the National Assembly, for approval to borrow a blind foreign loan of $5.5 billion, to finance the 2017 Budget.
Part of the sum is to be expended in settling $3 billion maturing domestic debt obligations of the federal government.
The other segment is to finance Capital component of the 2017 Budget, which implementation has been in limbo.
In a letter forwarded to the Senate President, Bukola Saraki yesterday, Buhari explained $3 billion would be sourced through Euro bond while, the remaining $2.5 would come from other sources in the Capital Market (ICM), including loan syndications through banks.
“It should be noted that the intention is to issue the eurobonds first, with the objective of raising all the funds through eurobonds, and that diaspora bonds will only be issued where the full amount cannot be raised through eurobonds”
Another feature of the external loan request is that, “being a market based transaction, the terms and conditions of the borrowing can only be determined at the point of issuance of finalization, based on prevailing market conditions in the International Capital Market”.
President Buhari listed the capital projects to include: Mambilla Hydropower Project, Construction of a second runway at the Nnamdi Azikiwe International Airport.
“Other projects to be funded by this loan are: counterpart funding for rail projects and the construction of the Bodo-Bonny Road, with a bridge across the Opobo Channel” the letter further read..
According to Buhari, the request for external loan of $3 billion was based on the resolution arrived at by the Federal Executive Council (FEC) in its meeting held on August 9, 2017.
He assured the Senate that the loan request would not lead to increase in the public debt portfolio of the country.
“It is important to note that the proposed sourcing of $3 billion loan from external sources to refinance maturing domestic debt will not lead to an increase in the public debt portfolio because the debt already exists, albeit in the form of high interest short term domestic debt”, he continued.
He further explained that the substitution of domestic debt with relatively cheaper and longer term external debt will lead to a significant decrease in debt service cost.
He added that the proposed refinancing of domestic debt through external debt will also achieve more stability in the debt stock while also creating more borrowing space in the domestic market for the private sector.