President Muhammadu Buhari led federal government has written to the Nigeria Senate, seeking for its approval of another external loan to the tune of $6,18 billion, an equivalent N2.343 trillion to fund the 2021 budget deficit. The request by President Buhari was contained in a letter read at plenary by the President of the Senate, Senator Ahmad Lawan. According to Buhari, the proposed loan which is equivalent of N2.3trn is to finance the 2021 budget deficit of N5.6trillion, just as he explained that the loan would enable the Federal Government fund critical infrastructural projects in transportation, health and education,m among others. Two letters from the President with regard to the approval of external loans were read by Lawan.
In a another letter, Buhari urged the Senate to give concurrent approval for donor fund projects under the 2018-2020 Federal Government External Borrowing (Rolling) Plan, at a total sum of USD36,837,281,256.00 plus Euro 910,000,000.00 and grant component of USD10,000,000.00 to become effective. President Buhari’s letter is titled: “Request for the resolution of the National Assembly for the implementation of the new external borrowing of N2.343trillion (about USD6.183billion) in the 2021 Approved Act.” In the letter the Presidency as asking the Senate to raise the sum of N2,343,387,942,848.00 (about USD6,183,081,643.40 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 N5.602trillion.
According to the letter, the request is in line with the provisions of Sections 21(1) and 27(1) of the Debt Management Office (Establishment, Etc.) Act, 2003 (DMO Act). It will be Recalled that the Senate had on Wednesday, April 21, 2021, approved President Muhammadu Buhari’s External Loan request of $1.5 Billion from the multilateral and Bilateral Institutions to enable the Federal Government finance the proposed revised 2020 Budget. The Senate had also approved an External Borrowing of €995,000,000 Million to enhance Agriculture as well as assist State governments finance critical projects. The approval by the Senate last month was sequel to the consideration of the report on request for approval of External Loans to finance Priority projects of the Government and projects to support State Governments of the Senator Clifford Ordia, Peoples Democratic Party, PDP, Edo Central led Senate Committee on Local and Foreign Debts. Prior to the approval last month, recall that President Buhari had written to the Senate in May 2020 requesting for approval for external borrowing to finance the 2020 budget deficit as well as priority projects to manage the COVID 19 pandemic.
In the new letter, President Buhari said, “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.’ According to the letter, on the implementation of the new external borrowing in the 2021 Appropriation Act, Buhari said: “The President of the Senate 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 $2,343,387,942,848.00 (about USD 6,183,081,643.40 at the Budget Exchange Rate of USD1.00/N379) is specified as new external borrowing.
“The President of the Senate 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 the Federal Government’s funding plan, Buhari in the letter said, “I wish to bring to the attention of the President of the Senate that the plan is 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 USD3 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 President of the Senate 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. Therefore, accessing the ICM will be relatively cheaper thereby moderating debt service cost, and it will also contribute to the level of External Reserves. Please see Table 1 for the comparative Yields of FGN Bends 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.”
Throwing light on the utilisation of proceeds of new external borrowing, President Buhari said: “The proceeds of the USD6.183 billion (82.343 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, namely: Power, Transportation, Agriculture and Rural Development, Education, Health, Provision of Counterpart Funding for Multilateral and Bilateral projects, Defence and Water Resources. With respect to the terms and conditions of the proposed external borrowings, the President of the Senate 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 USD6,183,081,643.40 has to be raised through Eurobonds, the Federal Ministry of Finance, Budget and National Planning and the Debt Management Office, working with the Federal Government’s 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 your information. As stated in Paragraph 2, the President of the Senate 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. The President of the Senate may wish to note that, in line with the previsions of Sections 21 (1) and 27 (1) of the DMO Act, a specific Resolution of the NASS (National Assembly) is required for external borrowing as stated in Paragraphs 2 and 9. Accordingly, the Senate is invited to consider and approve a resolution in the format outlined hereunder, 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 USD 6,183,081,643.40 at the budget exchange rate of USD1.00/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 International Capital Market: and
“The Issuance of Eurobonds in the sum of USD 3.00 billlion or more, but not more than USD6.183 billion approved as new external borrowing in the 2021 Appropriation Act. In a another letter where Buhari urged the Senate to give concurrent approval for donor fund projects under the 2018-2020 Federal Government External Borrowing (Rolling) Plan, at a total sum of USD36,837,281,256.00 plus Euro 910,000,000.00 and grant component of USD10,000,000.00 to become effective, said: “It is with pleasure that I forward the list of all the donor funded projects under the 2018 – 2020 Federal Government External Borrowing (Rolling) Plan for the consideration and concurrent approval of the Senate for same to become effective. The projects listed under the 2018-2020 External Borrowing Plan are to be financed through sovereign loans from the World Bank, African Development Bank (AfDB), French Development Agency (AFD), Islamic Development Bank, China EXIMBank, China Development Bank, European Investment Bank, European ECA, KfW, IPEX, AFC, India EximBank and International Fund for Agricultural Development (IFAD) at a total sum of USD 36,837,281,256 plus Euro 910,000,000 and grant component of USD10,000,000. Distinguished Senate President may wish to know that the projects and programmes in the Borrowing Plan were selected based on positive, technical and economic evaluations as well as the contribution they would make to the socio-economic development of the country including employment generation and poverty reduction as well as protection of the most vulnerable and very poor segments of the Nigerian society.
“Distinguished Senate President may also wish to know that all the listed projects form part of the 2018 – 2020 External Borrowing Plan and covered both the Federal and States Governments’ Projects and are geared towards the realization of the Nigeria Economic Sustainability Pian that cut across key sectors such as Infrastructure, Health, Agriculture and Food Security, Energy, Education and Human Capital Development and COVID-19 response efforts. A summary of some key projects in each of the six geopolitical zones and a summary on the expected impacts on the socio-economic development of each of the six (6) geo-political zones are attached herewith as Annex II and III. Given the importance attached to the timely delivery of the projects listed in the proposed Borrowing Plan and the benefits both the Federal and States Governments stand to gain from the implementation of same, I hereby wish to request for the kind consideration and concurrent approval of the Senate for the 2018 – 2020 Federal Government External Borrowing (Rolling) Plan to enable the projects become effective.”
