The proposed $3 billion (about N1 trillion) debt to be borrowed by the federal government to refinance an existing loan would save the country about N91.65 billion per annum, Minister of Finance, Kemi Adeosun, said on Thursday.
The minister explained recently that the debt refinancing plan, which was a major component of the total $5.5 billion loan package being considered by the government, was to help take care of the legal debts inherited from the immediate past Goodluck Jonathan administration.
Speaking on the possible benefits of the revenue and debt management strategy on Thursday, the minister said the strategy would involve converting short term Treasury Bills into longer tenured international debt at single digits interest rates.
According to a statement from her office, she said about N76.375 billion would be saved every year from borrowing the other $2.5 billion component of the loan; making a total annual saving of about N168 billion from the $5.5 billion loan.
“The proposed refinancing of $3 billion worth of short term Treasury Bills into longer tenured international debt is expected to save N91.65 billion per annum,” the minister added.
Other benefits of the strategy, she said, include improvement in the country’s foreign reserves through increased dollar inflow and reduction in domestic debt demand; as well as lengthening the maturity profile of the debt and reducing the rollover risk.
“This will significantly reduce the crowding-out of the private sector and support the aspirations of the monetary authorities to bring down interest rates in the country,” the minister explained.
She said she was confident the revenue and debt management strategy would mitigate the country’s debt service risks and fast-track the country’s development.
The government does not see a significant devaluation risk as the implementation of the Economic Recovery Growth Plan, ERGP, over the medium term, is such that the Naira is expected to strengthen, she explained
Welcoming the advice by the country’s international development partners, including the International Monetary Fund, IMF, Mrs. Adeosun said mobilising revenue to improve the debt service to revenue ratio was a key element of the economic reform strategy.
This, she explained, was being undertaken through a number of initiatives including the plugging of leakages and the deployment of technology revenue management systems.
She specifically cited the example of the health pay scheme, a pilot cashless revenue project in the health sector, which recorded material increases in revenue earnings.
She also spoke about the benefits of the ongoing Voluntary Assets and Income Declaration Scheme, VAIDS, initiative by the Federal Inland Revenue Service, FIRS, expected to equally positively impact the level of tax collections.
“The difference in our economic strategy is that we are changing the mix of revenue sources available to government from the traditional oil or debt to a combination of oil, debt and domestic revenue,” Mrs. Adeosun said,
In the short term, she said, the strategy would enable the debt service to revenue ratio to improve.
In addition, the minister said government’s refinancing of its inherited debt portfolio would lead to significant benefits, particularly through a reduction in cost of funds.
While government has been borrowing from domestic sources at about 16 per cent interest rate, the country would be able to obtain the loans at a rate not exceeding 6 per cent per annum.