It is no more news that the Federal Government wants to incur an additional Eurobond debt of $5.5 billion to carry out capital projects and service existing debts. The debt has been a contentious issue with the Federal Government, particularly the Minister of Finance, Kemi Adeosun, believing that the debt will not dent Nigeria’s fortunes. On the other hand, the World Bank has categorically come out to refute the Minister’s assertion, explaining that the debt could affect Nigeria more than is being anticipated.
In an earlier article, Nairametrics explained why for Nigeria, at this point, seeking external is the unpalatable but unavoidable path. Now, the Debt Management Office (DMO) has come out with four reasons why seeking the Eurobond external debt is in the country’s best interests. These reasons are:
- Reduce Debt Service
Reduce the Interest Cost of Borrowing as external borrowing in US Dollars is much cheaper at about 7 per cent p.a. compared to up to 17 per cent p.a. in the domestic market.
- Increase Stability in the Debt Stock
Extend the tenor profile of the debt stock as longer-dated external debt is used to replace short term domestic debt. This would make the debt portfolio more stable, thereby reducing refinancing risk.
- Increase in borrowing space for the private sector
The pressure in the domestic market created by the large government borrowing will be reduced. This will create more space for borrowing by the private sector which will enable them contribute to the growth of the Nigerian economy.
- Increase in Nigeria’s External Reserves
External Borrowing represent foreign currency into the nation’s External Reserve thereby allowing for a stable exchange rate for the Naira.