The N850 billion loan approved on Tuesday by the Senate is not a new borrowing, but a “conversion of external to domestic borrowing”, the Debt Management Office (DMO) said on Tuesday.
At its first plenary session on Tuesday since its resumption after an indefinite adjournment in the wake of the coronavirus pandemic last March, the Senate gave a speedy approval of the loan request.
In giving the approval, the lawmakers said the loan, which would be sourced from domestic capital market, will be used by the government to finance key approved projects and programmes in the 2020 Appropriation Act.
But, giving more details of the loan, the Director-General of the DMO, Patience Oniha, said this was not a new request or incremental borrowing, rather “an amendment of the source of borrowing from external to domestic.”
“The 2020 Appropriation Act approved a total of N1,594.99 billion (about N1.595 trillion) as new borrowing to part-finance the deficit in the Budget (put at about N2.175 trillion),” she said.
The total debt component in the approved 2020 Budget consisted N794.99 billion from domestic borrowing sources and N850 billion from external borrowing sources.
With the ravaging impact of the coronavirus pandemic on the global economy, particularly the international capital market, Mrs Oniha said the federal government decided to reappraise its borrowing plans for the year.
Part of the outcome of the reappraisal, she said, was to decide to raise the N850 billion earlier approved as external borrowing, from domestic sources.
“This conversion from External to Domestic borrowing is to ensure that the implementation of the 2020 Appropriation Act is not jeopardized by lack of funds.
“Thus, the N850 billion is not new or incremental borrowing, rather it is an amendment of the source of borrowing from External to Domestic sources,” the head of the debt management agency said.
She said with the change, the new figure for the total domestic borrowing under the 2020 Appropriation Act is now about N1.595 trillion, which remains the same as the total new borrowing earlier approved in the same Act.
The decision by the president to seek fresh approval from the Senate and House of Representatives to convert the source for raising the N850 billion from external to domestic was to ensure compliance with relevant laws.
With the House of Representatives expected to also give its approval to the request, Mrs Oniha said subsequently, the DMO would issue FGN securities in the domestic market to raise the N850 billion, to provide high-quality investment opportunities for the investing public.
Over the years, borrowing from external sources has been a more stable and reliable source for the federal government, in view of the low interest rate and longer repayment moratorium.
Again, external borrowing was a more convenient option for the government to avoid crowding out local businesses from the few borrowing opportunities available to access credits to grow their businesses and the economy.
However, in the aftermath of the coronavirus pandemic, the international capital market is gasping for breath, as most economies are virtually grounded and the global economy is at the threshold of a major recession; countries are thus forced to look inwards for life support.
For Nigeria, the options are few, as its stabilisation fund, which is supposed to have reserves to bail out the economy in times of serious economic crises, is virtually depleted, while the local capital market is hardly in good shape as a result of the current crisis.
Concerns have been mounting over Nigeria’s rising debt profile, put at about N26.2 trillion as at September 30, 2019.
Of this amount, total domestic debts is put at about N18 trillion, or 68.45 per cent of the total public debts.