External borrowing: Buhari writes N’Assembly, requests N2.343 trillion

Tunde Opalana and Tom Okpe, Abuja

President Muhammadu Buhari has written to the National Assembly requesting for the implementation of new external borrowing of N2.343trillion, about US $6.183 billion, in the 2021 Appropriation Act.

The letter signed by the President himself explained that the purpose was to request for a Resolution of the National Assembly (NASS) to raise the sum of N2,343,387,942,848.00 (about USD 6,183,081,643.40 at the Budget Exchange Rate of USD1.00/N379) provided as New External Borrowing in the 2021 Appropriation Act (Item No. 330) to part-finance the Budget Deficit of N5.602 trillion.

It further explained that the request is in line with the provisions of Sections 21(1) and 27(1) of the Debt Management Office (Establishment,) Act, 2003 (DMO Act). Section 21(1) of the DMO states that “no external loan shall be approved or obtained by the Minister unless its terms and conditions shall have been laid before the National Assembly and approved by its resolution,” while Section 27(1) states that “the National Assembly may by a resolution approve, from time to time, standard terms and conditions for the negotiation and acceptance of external loans and issuance of guarantees.”

Implementation of the New External Borrowing in the 2021 Appropriation Act, the Speaker may wish to recall that the 2021 Appropriation Act provides for N4,686,775,885,696.00 as New Borrowings (item No. 328) to part-finance the 2021 Fiscal Deficit, of which 50% or N2,343,387,942,848.00 (about USD 6,183,081 ,643.40 at the Budget Exchange Rate of USD1.00/N379) is specified as New External Borrowing.

The letter reads: The Speaker may also wish to note that the allocation of N2.343 trillion to New External Borrowing in the 2021 Appropriation Act is consistent with the Nigeria’s Debt Management Strategy, which seeks amongst other objectives, to moderate ‘debt service costs by accessing relatively cheaper external funds, and to free-up space in the domestic market for other borrowers.”

On funding: “I wish to bring to the attention of the Speaker that the plan ls to raise the sum of USD 6.183 billion from a combination of sources; namely: multilateral and bilateral lenders, as well as from the International Capital Market (ICM) through the issuance of Eurobonds.

“From recent trends in the ICM, it is now possible for Nigeria to raise funds in the ICM and this explains why we are proposing that the New External Borrowing in the 2021 Appropriation Act, should include issuing Eurobonds in the ICM.

“We estimate that Nigeria may be able to raise USD 3 billion or more, but not more than USD 6.183 billion (the amount provided in the 2021 Appropriation Act) in a combination of tenors between 5-30 years; the outcome would, however, be determined when Nigeria approaches the market.

“The Speaker may further wish to note that not only is the ICM now open to issuers like Nigeria and Interest Rates lower than the levels In 2020, given the recent monetary policy stance, as well as, rising levels of inflation, the level of liquidity in the domestic market has decreased while domestic Interest Rates are beginning to rise.

“Accessing the ICM will be relatively cheaper thereby moderating debt service cost, and it will also contribute to the level of External Reserves.

“Table 1 for the comparative Yields of FGN Bonds in the Domestic Securities Market and Nigeria’s Eurobonds in the ICM of similar Tenors as at March 30, 2021.

Also see Appendix I for all the outstanding Nigeria’s Securities (Eurobonds and Diaspora Bond) and their respective Yields as at March 30, 2021.

Utilisation of Proceeds at New External Borrowing; “The proceeds of the USD 6.183 billion (N2.343 trillion New External Borrowing in the 2021 Appropriation Act) will be used to fund specific Capital Projects in the Budget.

“This includes projects from priority sectors of the economy including; Power, Transportation, Agriculture and Rural Development, Education, Health, provision of Counterpart Funding for Multilateral and Bilateral Projects, Defence and Water Resources.”

Summary of indicative Terms and Conditions
With respect to the Terms and Conditions of the proposed External Borrowings, the Speaker may wish to note that the multilateral and bilateral institutions operate on standard Terms and Conditions and these are outlined in Appendix II.

“In the case of Eurobonds, the Final Terms and Conditions (Interest Rate and Tenors) can only be determined at the point of issuance of the Bonds in the ICM, and will be subject to market conditions prevailing at that time.

“In the event that some or all of the USD 6,183,081 ,643.40 has to be raised through Eurobonds, the Federal Ministry of Finance, Budget and National Planning and the Debt Management Office, working with the Federal Governments appointed Transaction Advisers, will ensure that Nigeria secures the best Terms and Conditions within the context of the market.

“Meanwhile, the Indicative Terms and Conditions are attached as Appendix III for more information.

Required Resolutions: “As stated in Paragraph 2, the Speaker may wish to note that the Resolution of the NASS in the attached format (Appendix IV) is required to implement the New External Borrowing of USD 6,183,081,643.40 in the 2021 Appropriation Act.

Prayer; the Speaker may wish to note that, in line with the provisions of Sections 21 (1) and 27 (1) of the DMO Act, a specific Resolution of the NASS is required for external borrowing as stated in Paragraphs 2 and 9.

“Accordingly, the House of Representatives is invited to consider and approve a Resolution in the format outlined here-under, which is also attached as Appendix IV as stated in Paragraph 9:

“The implementation of the New External Borrowing of N2,343,387.942,848.00 (about USDB,183,081,643.4O at the Budget Exchange Rate of USD l.OO/N379) In the 2021 Appropriation Act and that the amount should be raised from multiple sources Multilateral and Bilateral sources as may be available and through the issuance of Eurobonds in the lnternational Capital Market; and the issuance of Eurobonds in the sum of USD$.00 billion or more, but not more than USDG.183 billion approved as New External Borrowing in the 2021 Appropriation Act,” it stated.