Mohammed Shosanya
President Bola Ahmed Tinubu has requested the National Assembly to approve an external loan of N1.767 trillion (approximately $2.209 billion) to address critical funding gaps in the 2023 budget.
In a letter addressed to the Speaker of the House of Representatives, Hon. Tajudeen Abbas,President Bola Tinubu explained that the new external borrowing would be used to finance the 2024 budget deficit.
He highlighted that the external borrowing forms part of the N7.828 trillion approved in the 2024 Appropriation Act for new borrowings.
President Bola Tinubu has outlined plans for a total of N7.828 trillion in new borrowings, comprising N6.061 trillion in domestic borrowing and N1.767 trillion in external borrowing. This request, in accordance with Section 21(1) and 27(1) of the Debt Management Office Act, was approved by the Federal Executive Council.
He explained that the borrowed funds will be directed towards stabilizing the economy, fostering sustainable growth, and financing critical projects in key sectors.
Besides,the funds will help bolster the country’s external reserves and support the stability of the Naira exchange rate.
He stated that the government plans to raise the funds through issuance of Eurobonds, Sovereign Sukuk, and Bridge Finance/Syndicated Loans.
He explained that all the options would be pursued simultaneously for the capital raising of USD2.21 billion considering the costs, relative benefits, and timing of each of them to the country.
The President,however, noted that emphasis would be on the Issuance of Eurobonds which he said is typically faster to conclude.
The letter read in part: “In accordance with the provisions of Sections 21(1) and 27(1) of the Debt Management Office (DMO) (Establishment, Etc.) Act, 2003, and the approval of the Federal Executive Council, I write to request for a Resolution of the National Assembly (NASS) to raise the sum of N1,767,610,321,779.00 (equivalent of USD2,209,512,902.22 at the Budget Exchange Rate of USD1.00/N800) provided as New External Borrowing in the 2024 Appropriation Act to part finance the budget deficit of N9.179 trillion.
“The Right Honourable Speaker may wish to recall that the 2024 Appropriation Act approved the sum of N7,828,529,477,860.00 as New Borrowings to part-finance the 2024 budget deficit of N9.179 trillion. The total New Borrowings of N7.828 trillion was further subdivided into New Domestic Borrowing of N6.061 trillion and New External Borrowing of N1.767 trillion.
Explaining the funding plan,President Tinubu said: “Nigeria could raise all or part of the New External Borrowing of USD2.21 billion through the issuance of Eurobonds in the ICM. Nigeria has been a regular issuer in the ICM and had raised USD16.92 billion out of which USD15.12 billion is outstanding.
“The ICM is now open to countries similar to Nigeria, and so far, Cote d’Ivoire, Benin, Kenya, and Cameroon have issued Eurobonds in the ICM in 2024.
“A debut Sovereign Sukuk of up to USD500 million in the ICM with credit enhancement from the Islamic Corporation for Insurance of Investment and Export Credit (ICIEC), a member of the IsDB Group, subject to the terms and conditions.
“Option three. Bridge Finance/Syndicated Loans by the International Bookrunners/Joint Lead Managers (Citigroup Global Markets Ltd, Goldman Sachs, JP Morgan and Standard Chartered) that have been appointed through an Open Competitive Bid to advise on the Issuance of Eurobonds, where it becomes necessary.
“This option will only be used if for any reason the Issuance of Eurobonds is delayed due to market conditions and there is an urgent need for funds. Please note that the precedent for accessing Bridge Finance/Syndicated Loan is that the proceeds of the Eurobonds will be used to offset the loan.
“The Right Honourable Speaker may further wish to note all the options will be pursued simultaneously for the capital raising of USD2.21 billion considering the costs, relative benefits, and timing of each of them to the country.
“However, emphasis will be on the Issuance of Eurobonds (Option 1) which is typically faster to conclude. Additionally, a larger amount can be raised through Eurobonds at a relatively lower cost.
The President explained that because all the pptions are market related, the Final Terms and Conditions (Interest Rate and Tenors) can only be determined at the point of Issuance of the Eurobonds and Sukuk, and negotiation with lenders in the case of Bridge Finance/Syndicated Loan.
“They will all be subject to market conditions prevailing at that time. The Federal Ministry of Finance and the Debt Management Office, working with the Transaction Advisers appointed by the Federal Government through Open Competitive Bidding, will ensure that Nigeria secures the best Terms and Conditions within the context of the market. Meanwhile, the Indicative Terms and Conditions for Eurobonds, which can be used as a guide is attached as Appendix I for your information.
“The funds are needed to give more impetus to the ongoing implementation of the projects and programmes in the 2024 Appropriation Act, which were designed to stabilize the economy and put it on the path of sustainable growth and development.
“The key projects to which the proceeds will be deployed from the priority sectors of the economy, such as power, transport, agriculture, defence and security.
“It is essential to note that the proceeds from the new external borrowing will contribute to increasing the accretions to Nigeria’s external reserves. These funds will be deposited into the Central Bank of Nigeria’s account, which will, in turn, provide vital support to the stability of the Naira exchange rate.
“In light of this, and in accordance with the provisions outlined in Sections 21(1) and 27(1) of the Debt Management Office (DMO) Act, a specific resolution from the National Assembly (NASS) is required for the implementation of the new external borrowing as stipulated in Paragraphs 1 and 7 of the 2024 Appropriation Act”.
