Offshore borrowing strengthened the naira in the forex market


From Uche Usim, Abuja

The Debt Management Office (DMO) on Monday informed critics of federal government borrowing that the $ 15.668 billion offshore loans were providing remarkable traction to the naira in the exchange rate market and saved it from a further erosion.

DMO Director General Ms. Patience Oniha made the disclosure in Abuja during a workshop on Understanding Nigeria’s Public Debt Management organized for the secretariats of the Senate Committee on Local and Foreign Debt and the Committee on the House on AIDS, Loans and Debt Management.

The boss of DMO explained that the $ 15.668 billion raised thanks to offshore loans guaranteed between January 2011 and September 2021 was a strategic accelerator for Nigeria’s foreign exchange reserves, contrary to the toxic opinions of some circles which called it a bad decision.

Oniha explained that external borrowing is not limited to raising funds to finance budget deficits.

She said: “DMO’s activities are not limited to domestic financial markets. You might like to note that the DMO has raised over $ 15.368 billion through Eurobonds and a $ 300 million Diaspora Bond to fund budget deficits and various projects.

“Through these issues of securities in international capital markets, the federal government’s sources of funding have expanded while creating opportunities for Nigerian businesses, including banks, to raise capital abroad. Perhaps, more importantly, the proceeds from Eurobonds issued increased Nigeria’s external reserves, thus supporting the exchange rate of the naira.

“New loans are contracted in accordance with the law and public debt is managed in accordance with international best practices and debt service is on time. In the latter’s case, the DMO undertakes an annual debt sustainability analysis and is guided by a medium-term debt management strategy that is prepared every four years, ”she explained.

Regarding the domestic loan for 2021, the Oniha stressed that about 90% of it had been made thanks to various securities.

She added, “As you know, for domestic borrowing for this year, we have around 3.145 trillion naira from both the Credit Act and the Supplementary Act.

“As you probably already know, we are going to raise between 200 and 250 billion naira Sukuk, so what remains unanswered is approximately 345 billion naira.

“So we have raised around 2.8 trillion naira, what’s left is around 350 billion naira. We’ll do a Sukuk, maybe two weeks from now, the rest we get from an FGN bond auction in December, we still have a month left. So we’re almost there.

Oniha added that $ 4 billion of the $ 6.18 billion in external borrowing approved in the 2021 budget has since been made.

According to her, “For the external, which represents approximately 6.18 billion dollars, we raised 4 billion dollars in September. We had what you call demand, which is the same as a $ 12 billion plus backlog or subscription, but the advisers told us, let’s lower the interest rate a bit and see. how much we get and also $ 6 billion at a time is huge.

“You know, after the issue, there’s a secondary market they’re traded in, so we lowered the rate a bit and we had always asked for over $ 9 billion, but $ 4 billion was a good size. to be emitted at the same time so that this is not the case. Don’t become so surplus in the market that the price will not be very good both for the sovereign and for the other borrowers.

“So for the remaining $ 2.18 billion, we are working with the transaction advisers and monitoring the market. If we think the market is good and our supervisors say we should raise that money, we will. But our options are on the table for sources of borrowing. We have done a lot to finance the 2020 budget. ”

The DMO boss noted that the country’s latest debt sustainability analysis showed a debt-to-GDP ratio of 21.61%, well below the 40% limit set by the country for itself and the recommended 55%. by the World Bank.

She said, however, that the nation needs to pay more attention to income because, according to her, “we are using the income to pay down debt.”

“Our debt-to-GDP ratio is low, currently around 21.61%. Our limit for Nigeria is 40 percent, as a country, but the World Bank recommends up to 55 percent.

“So if you look at it from that narrow perspective, you’ll say it’s sustainable. But in reality, this is the income you use to pay off the debt, so we need to generate more income to make sure the debt is sustainable in the future. We just concluded one for 2021, the report will be out soon. But it showed that our debt is very sensitive to income, which involves debt servicing, so we need to act in this area. “

Oniha further revealed that the federal government issued around 1.5 trillion naira in promissory notes to various categories of its debtors, including entrepreneurs, oil traders.

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