Senate Okays $5.5 Billion Loan for FG

Nigerian Senate
Nigerian Senate

Senate Okays $5.5 Billion Loan for FG

The Senate Tuesday approved the request of President Muhammadu Buhari to borrow the sum of $5.5 billion.

Nigerian Senate
Nigerian Senate

The sum of $2.5 billion out of the $5.5 billion, according to the presidential request, will be used to fund the 2017 budget while the balance of $3 billion is meant to refinance domestic debts.

Nigeria’s debt profile stood at N19.6 trillion as at June 30th, 2017 according to Debt Management Office (DMO) document.

Before the unanimous approval of the loan, some Senators called for caution on the way and manner the Federal Government rushes to take foreign loans.

The lawmakers particularly expressed fear that the ability of the country to repay the loans might be limited if the national currency depreciates further.

Senator Yusuf Abubakar Yusuf, (Taraba central) who was one of those who voiced this fear said: “We must be very careful because this is dependent on what happens in our foreign reserves. If our foreign exchange rate goes to N500/USD1, we are going to have a very serious problem on generating enough foreign exchange to pay the foreign debts.”

The approval of the loan followed the adoption of the report of the Committee on Local and Foreign Debts that vetted the request sought partly to finance the deficit in the 2017 budget.

Chairman of the Committee, Senator Shehu Sani who presented the told the Senate that “the terms and conditions of the loan are favourable and do not pose any compromise to the integrity, independence and interest of Nigeria and its citizens.”

He added, “The projects are essential for rapid economic and social development of Nigeria. And that the projects, when completed, will create jobs through a chain of economic activities.”

The committee noted that the $3 billion for refinancing of the country’s domestic debts will not lead to an increase in the public debt portfolio.

It said that the loan will reduce the cost of the debts while the projects are essential for rapid economic and social development of Nigeria.

It said that the construction of the second runway in the Nnamdi Azikiwe International Airport will enhance the safety of air passengers, increase the use of the airport by international airlines, “thus increase the revenue base of the government.”

It said that the rail projects when completed will reduce the use of roads, its attendant congestion and thus minimise the cost of road maintenance.

The committee said that the Mambila Hydro Power Project which had long been abandoned when completed will add substantially to the National grid and improve power output of the country.

The $3 billion refinancing loans, it said, will create a significant decrease in the cost of financing the nation’s debt stock while creating more borrowing space in the domestic market for the private sector to benefit from.

The Committee recommendation: a.The committee to recommend for approval by the Senate the issuance of USD2.5billion to finance the following projects in 2017 Appropriation Act,

  1. Mambilla Hydropower Project, ii. construction of a second runway at the Nnamdi Azikiwe International Airport Abuja, iii. counterpart funding for rail projects iv. construction of the Bode-Bonny Road, with a bridge across the Opobo Channel.
  2. That the Senate for approve the USD3billion for refinancing of the nation’s domestic debt; c. That the Senate to emphasise effective oversight of the proposed projects.

Deputy Senate President, Senator Ike Ekweremadu who presided commended senators for supporting approval of the loan.

He said, “This Senate will continue to partner with the Federal Government in matters that concern the ordinary people of Nigeria.”

“The implementation of the 2017 budget is key because any Appropriation Act that is not implemented is worthless.”

“So, whatever needs to be done to ensure that the budget is implemented, will always have the support of this Senate.”

“And since this is tied to the implementation of the 2017 budget, I believe that that had informed the support that this request is now generating.”

“We need to urge the Debt Management Office to ensure that our debt profile is monitored so that we will always ensure that it is within the acceptable limit.”

President Muhammadu Buhari had in his request  for the approval of the two external loans last month said that in order to implement the external borrowing approved by the National Assembly in the 2017 Appropriation Act, the Federal Government issued a $3OO million Diaspora Bond in the International Capital Market (ICM) in June 2017.

He noted that “the balance of the 2017 external borrowing, in the sum $3.2 billion is planned to be partially sourced from issuance in the ICM of $2.5 billion through Eurobonds or a combination of Eurobonds and Diaspora Bonds, while $700 million is proposed to be raised from multilateral sources.”

“It should be noted that the intention is to issue the Eurobonds first, with the objective of raising all the funds through Eurobonds, and that Diaspora Bonds will only be issued where the full amount cannot be raised through Eurobonds.”

He listed the projects as the Mambilla Hydropower Project; construction of a second runway at the Nnamdi Azikiwe International Airport; counterpart funding for rail projects and the construction of the Bode-Bonny Road, with a bridge across the Opobo Channel.

On the $3 billion for the re-financing of domestic debts, the president said: “In addition to the implementation of the external borrowing approved in the 2017 Appropriation Act, in order to reduce debt service levels and lengthen the tenor profile of the debt stock, the Federal Government seeks to substitute maturing domestic debt with less expensive long-term external debt.”

President Buhari said that the Federal Government plans to source $3.0 billion through the issuance of Eurobonds as approved by the Federal Executive Council at its meeting of August 9, 2017.Listing what he believed could be the benefits of the loan, Buhari stated that the proposed re-financing of domestic debt through external debt would achieve more stability in the debt stock while also creating more borrowing space in the domestic market for the private sector.

The President told the Senate that the fact that in the 2017 Appropriation Act, debt service at N1.663 trillion represents 32.73 per cent of the government’s total expenditure, which makes it important to take urgent steps to reduce debt service costs.

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