DMO: $3.3bn Dual Borrowing Supports CBN’s Aspiration to Cut Interest Rates

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A bridge under construction…projects of this nature are highly capital intensive

• FG must utilise proceeds judiciously, analysts

Bamidele Famoofo

The Debt Management Office has said the US$3.3 billion long-term dual borrowing by the federal government supports the desire of the Central Bank of Nigeria to reduce interest rates.

DMO Director-General, Patience Oniha, disclosed while delivering the issuer’s special address at the listing of the oversubscribed US$3.3 billion dual bonds, namely $3 billion Eurobond and US$300 million Diaspora Bond, on the Nigerian Stock Exchange (NSE) and the FMDQ OTC Securities Exchange.

As the federal government basks in the euphoria of successful listing of the two bonds, economic analysts and stakeholders have told the federal government to apply the proceeds of the bonds appropriately and for the intended purposes.

They unanimously agreed that except Nigeria spends the money judiciously on projects that would have long-term impact on ordinary Nigerians, the purpose for raising the capital would have been defeated.

Last Thursday, the US$3 billion Eurobond and US$300 million Diaspora Bond were officially listed on the NSE and FMDQ OTC Securities Exchange after being appropriately priced.

According to Oniha, whose agency issued the instruments in the International Capital Market (ICM) on behalf of the Federal Government of Nigeria (FGN), the purpose of the capital raising of USD$3.3billion (about N1.01trillion), was to fund the budget deficit and refinance government’s inherited debt portfolio.

Besides funding a budget deficit, Oniha said there were other benefits that accrued to Nigeria as a result of the borrowing. One of them is reduced cost of funds (interest rate).

The borrowing was sought to sustain momentum in tapping the international markets following prior issuances while domestic debt demand would be reduced, thus reducing crowding-out of the private sector and supporting the aspiration of CBN to bring down interest rates.

In addition, it is expected to support the federal government’s drive towards economic diversification from oil revenue.

Similarly, Oniha said the Diaspora bond would boost the country’s profile with Nigeria’s first-ever SEC-registered debt instrument. According to her, it raised the fund to finance the development of key infrastructure, with proceeds to be used for budgeted capital expenditure.

Oniha added that the Diaspora Bond provided an opportunity for Nigerians in Diaspora to contribute their quota to the development of the nation’s economy.

The Chief Executive Officer of NSE, Mr. Oscar Onyema, said the listing would provide options for investors to diversify their funds aside the FGN bonds.

But while government is full of praises for the huge success recorded by the capital raising process and the apparent implication that the world has accepted Nigeria as a destination for long-term investments, financial experts as well as economists have warned that the President Muhammadu Buhari-led APC government must adhere strictly to the conditions of raising the capital.

A Lagos-based economist and Managing Director of BIC Consultancy Services, Dr. Boniface Chizea, said the borrowing must specifically be deployed to financing capital projects in the 2017 budget. “Borrowing to finance consumption or recurrent expenditure is a borrowing directed in a wrong direction”, he said. According to Chizea, borrowings must now be calculated, methodological and purposeful given that the country has recently exited recession, and needs money to fund developmental projects, which will foster growth in the economy. In his own analysis, Head Research and Development at SCM Capital, Mr. Sewa Wusu, like Chizea, said going for long-term capital to grow the economy after the exit of an economic recession was needful but warned that such capital must be appropriately applied. “Sourcing money from external sources at this moment is absolutely necessary for the country. It’s not a bad idea at all, considering that that is the way some other African countries are going now to keep their economies running.”

Wusu, however, added that such borrowed funds must be appropriately implemented and monitored by the necessary government organs to ascertain that the old trend of misappropriating borrowed funds does not re-emerge, where funds are diverted to other purposes different from their original purposes.

Similary, an economist and chief consultant at Biodun Adedipe Associates, Dr. Biodun Adedipe, said it was wise for government to seek a long-term capital to finance infrastructure development.

He pointed out that the Senate approved the request of President Muhammadu Buhari to raise the fund only when they were told that the money would be deployed to funding infrastructure with the other attendant benefits.

On the economic outlook for 2018, Adedipe said there was no doubt about the fact that Nigeria had exited recession. “We have had two quarters of positive growth back-to-back and there are strong indications that the last quarter of the year 2017 will record more GDP growth too.”

He advised businesses to begin to watch out for recovery signs.

Adedipe further said: “A nation can go through the different phases of boom, recession and slump to recovery. So, there are recovery signs you need to begin to watch out for. Nigeria now has a brighter outlook. You must keep your eyes on sectors such as agriculture, manufacturing, ICT, real estate, mining and trade amongst others.” He explained that these were dominant contributors to the nation’s GDP as they were of interest for government.

Buhari, in his letter to the Senate earlier in the year, seeking the approval of the loan, said: “The Senate may wish to know that the proceeds of the proposed issuance of Eurobonds and Diaspora bonds in the ICM will be used to finance the deficit of the 2017 appropriation act and provide funding for capital projects in the budget.”

“The projects include the Mambilla hydro-power project, construction of the second runway of the Nnamdi Azikiwe International Airport, counterpart funding of rail projects and construction of Bonny road with a bridge across Opobo channel.”